Three things investors should know about technical analysis

1
THE THREE PRINCIPLES OF
TECHNICAL ANALYSIS
Technical analysis or charting, uses market
action such as past price and volume data as
indicators of price movement. The latter of these
exchange analysis methods is used for any
security which has trading data that can be
traced back in time. This allows analysts to
predict possible future prices better. Technical
analysis is based on three assumptions which are
mentioned below.
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2
THE MARKET DISCOUNTS EVERYTHING
One of the biggest assumptions in technical
analysis is that price movement does not take
into account the factors that define the company.
This form of analysis assumes that at any point
of time, the stocks price is a reflection of
everything that affects the organization
including the fundamental factors like the
balance sheet, the income statement, the cash
flow, and the management.
3
HISTORY REPEATS ITSELF
The third assumption in technical analysis of
shares is that history repeats itself where price
movement in concerned. This repetition of price
movement, according to technical analysts, is due
to market psychology. The assumption depends on
the fact that the market will always have a
consistent reaction to similar stimuli.
4
PRICE MOVES IN TRENDS
The second assumption in technical analysis is
that prices follow trends and these trends move
directionally which is upwards, downwards or
sideways or in a combination. What this means is
that once a technical analyst recognizes a trend,
they predict that any movement in future price of
the stock will follow that trend rather than go
against it.
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