The fundamentals of technical analysis
Technical analysis is an investment analysis method that focuses on historical price and volume data to predict future price movements. Technical analysts, or chartists, believe that price patterns and trends can provide valuable insights into a stock’s future performance. Key components of technical analysis include the following:
- Price charts: Visual representations of historical price data, such as line charts, bar charts, and candlestick charts, which help identify trends and patterns.
- Trend analysis: Evaluating the direction and strength of price movements, including uptrends, downtrends, and sideways trends.
- Technical indicators: Mathematical calculations based on price and volume data that provide insights into market sentiment, momentum, and volatility. Examples include moving averages, the relative strength index (RSI), and moving average convergence divergence (MACD).
- Support and resistance levels: Key price...