What does Technical Analysis mean?

Technical analysis is a method of evaluating securities by analyzing the statics generated by market activity, such as past prices and volume. Technical analysts do not attempt to measure a security’s intrinsic, value, but instead use charts and other tools to identify patterns that can suggest activity.

Just as there are many investment styles on the fundamental side, there also many different types of technical traders. Some rely on chart patterns, other use technical indicators and oscillators, and most use some combination of the two. In any case, technical analysis’ exclusive use of historical price and volume data is what separates them from their fundamental counterparts. Unlike fundamental analysts, technical analysis do not care whether a stock is undervalued – the only thing that matters is a security’s past trading data and what information this data can provide about where the security might move in the future.

The purpose of technical analysis is identify trend changes that precede the fundamental trend and do not (yet) make sense if compared to the concurrent fundamental trends.

According to Wikipedia – the free encyclopedia, “Technical analysis is a security analysis discipline for forecasting the future direction of prices through the study post market data, primarily price and volume {1}. In its purest form, technical analysis considers only the actual price and volume behavior of the market or investment.”

Investopedia explains Technical analysis as “Technical analysts believe that the historical performance of stocks and markets are indications of future performance”.

It further explains the same with the help of the following example:

In a shopping mall, a fundamental analyst would go to each store, study the product that was being sold, and then decide whether to buy it or not. By contrast, a technical analyst would sit on a bench in the mall and watch people go into the stores. Disregarding the intrinsic value of the products in the store, his or her decision would be based on the patterns or activity of people going into each store.