Technical analysis is the framework in which traders study price movement.
The theory is that a person can look at historical price movements and determine the current trading conditions and potential price movement.
Someone who uses technical analysis is called a technical analyst. Traders who use technical analysis are known as technical traders.
The main evidence for using technical analysis is that, theoretically, all current market information is reflected in the price.
Technical traders generally ascribe to the belief that “It’s all in the charts!”
This simply means that all known fundamental information is priced into the current market price.
If price reflects all the information that is out there, then price action is all one would really need to make a trade.
Technical analysis looks at the rhythm, flow, and trends in price action.
If a certain price held as a major support or resistance level in the past, forex traders will keep an eye out for it and base their trades around that historical price level.
Technical analysts look for similar patterns that have formed in the past and will form trade ideas believing that price could possibly act the same way that it did before.
Technical analysis is NOT so much about prediction as it is about PROBABILITY.
Technical analysis is the study of historical price action in order to identify patterns and determine probabilities of the future direction of price.
So how the heck does one “study historical price action“?
In the world of trading, when someone says “technical analysis”, the first thing that comes to mind is a chart.
Technical analysts use charts because they are the easiest way to visualize historical data!
Technical analysts live, eat, and breathe charts which is they’re are often called chartists.
You can look at past data to help you spot trends and patterns which could help you find some great trading opportunities.