Technical Analysis

Technical analysis claims to be able to forecast future market movements solely through the study of past market price and volume data. It contrasts with market forecasts based on the analysis of the fundamental factors influencing supply and demand for shares, currencies or commodities, so-called fundamental analysis. Technical analysts, also known as technicians or chartists, try to identify price patterns and trends in financial markets and exploit them. They search for chart patterns such as head and shoulders or double top reversal patterns, study indicators such as moving averages and look for chart support and resistance levels. Major investment banks and brokerages normally employ technical as well as fundamental analysts. The Random Walk Theory developed by Burton Malkiel, an American economics professor, casts doubt on the validity of the claims made by technical analysis. The theory is described in Malkiel's book 'A Random Walk Down Wall Street' and holds that prices follow a random and unpredictable path and that past performance cannot be used to forecast future direction.

See also: Candlestick Chart, Bar Chart, Point and Figure Chart, Channel Lines, RSI, Stochastic Oscillator, Momentum Oscillator, Trendline, Wedges, Gann, Bollinger Bands, Elliott Wave Theory, Dow Theory, Williams Percent R