Technical analysis

Sometimes referred to as the «other side of the coin», technical analysis incorporates a different set of quantitative methods to forecast market fluctuations. This method looks to determine what direction a trend will ultimately choose, and if the direction or momentum will continue.

As a result, some refer to technical analysis as attempting to understand the underlying emotions of the market in addition to studying the broader market itself using tools such as historical prices and longer term volume. In addition, technical analysts look to forecast price developments using patterns in the market that can help to determine future price action.

The field itself is supported by three key assumptions known to every technical professional:

1. Market Discounting
2. Prices Move in Trends, Not Spurts
3. Historical Price Fluctuations and Patterns Always Repeat

Market Discounts Everything

In the field of technical analysis, professionals tend to side with the underlying statement that the market always and will forever discount everything. This is to say that the market will always fairly price the underlying value of any asset that trades with all factors including market psychology and event risk being taken into consideration.

This means that any fluctuations that occur in the market place are solely dependant on price movement and the resulting decisions put forth by supply and demand.

Prices Move in Trends, Not Spurts

A widely held belief, most technicians believe that prices move in trends with longer durations, rather than in erratic and abrupt price spurts. As a result, many strategies and subsequent analysis is based on the assumption that price trends will begin and last for a certain duration and direction.

Historical Price Fluctuations and Patters Always Repeat

A key assumption, and probably the most important rule of technicians, is the idea that prices do and will repeat themselves over time. Supported by a belief in the repetitive nature of the market, attributed to the broader topic of psychology or a herd mentality, analysts look to evaluate price patterns and reoccurring price movements in order to forecast market movements and better understand trends. As a result, technicians prefer to use charts as their principle tool.