Technical Analysis: The Basics


What is Technical Analysis?

We can define Technical Analysis (TA) as the study of market action, primarily through the use of charts, for the purpose of forecasting future price trends. Market action refers to the three principal sources of information available to us, price, volume and open interest.

TA is based on three premises

1. Market action discounts everything
2. Prices move in trends
3. History repeats itself.

1. Market Action Discounts Everything

Anything that could possibly affect the price is already reflected in the price.

2. Prices move in trends

Markets trend, and our job is to identify trends early on so we can trade in the direction of the trend.

3. History repeats itself

Chart patterns are said to reveal the psychology of the market and we assume bullish or bearish patterns that we have witnessed in the past will continue to work well in the future.
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