Finance Dictionary
Technical Analysis
Definition
A trading discipline employed to evaluate investments and identify trading opportunities in price trends and patterns.
Deep Dive
Technical analysis is a trading and investment discipline that evaluates investments and identifies trading opportunities by analyzing statistical trends gathered from trading activity, such as price movement and volume. Unlike fundamental analysis, which focuses on a company's intrinsic value, technical analysis operates on the premise that past market performance is the best indicator of future performance. Technical analysts believe that all relevant information about a security is already reflected in its price, and therefore, historical price patterns and market behavior can predict future price trends.
Examples & Use Cases
- 1A day trader identifies a "double bottom" chart pattern in a stock's price, signaling a potential bullish reversal and a buying opportunity.
- 2An analyst uses a 200-day moving average to determine if a stock is in a long-term uptrend or downtrend, influencing their investment decision.
- 3A forex trader employs the Relative Strength Index (RSI) to determine if a currency pair is overbought or oversold, indicating a possible price correction.
Related Terms
Fundamental AnalysisChartingSupport and ResistanceMoving AverageCandlestick PatternTrend Lines