Technical analysis is a way of studying financial markets by looking at price movements and historical market data, rather than focusing on company news or economic reports.
The main idea behind technical analysis is that price patterns and market behaviour tend to repeat over time. By observing how prices have moved in the past, traders aim to better understand how markets behave.
What Does Technical Analysis Look At?
Technical analysis focuses mainly on:
Price – how an instrument’s price moves over time
Charts – visual representations of price movements
Market patterns – recurring shapes or trends seen on charts
Technical analysts use charts to observe whether prices are:
Moving upward
Moving downward
Moving sideways
Why Do People Use Technical Analysis?
Technical analysis is commonly used to:
Observe market trends
Identify areas where prices have previously changed direction
Understand market momentum and volatility
It is used across many markets, including forex, stocks, indices, commodities, and cryptocurrencies.
Common Tools Used in Technical Analysis
Technical analysis often involves the use of simple tools and indicators, such as:
Trend Lines
Trend lines are drawn on charts to help visualise the general direction of price movement over time.
Support and Resistance
Support refers to a price level where an instrument has previously stopped falling
Resistance refers to a price level where an instrument has previously stopped rising
These levels help describe how prices have reacted in the past.
Technical Indicators
Indicators are mathematical calculations based on price data. They are used to provide additional information about price movement, momentum, or volatility.
Examples include:
Moving averages
Oscillators
Volatility indicators
Technical Analysis vs Fundamental Analysis
Technical analysis focuses on price charts and market behaviour
Fundamental analysis focuses on economic data, financial reports, and external events
Some market participants use one approach, while others combine both for a broader view of the market.
Important Note
Technical analysis is a tool for understanding market behaviour, not a prediction method. Financial markets can be unpredictable, and no analysis method can guarantee outcomes.