Technical analysis for investment purposes primarily looks at historical market data, focusing on price movements and trading volume to predict future price trends and identify trading opportunities. Here are the key elements technical analysts examine:

What Technical Analysis Looks At

• Price Data: The core of technical analysis is the study of past price movements of a security to forecast its future direction

• Trading Volume: Volume data is analyzed alongside price to assess the strength or weakness of price movements and trends

• Price Patterns: Analysts look for recognizable chart patterns such as head and shoulders, double tops/bottoms, flags, pennants, and cup and handle formations that historically indicate trend reversals or continuations

• Trends: Identifying whether prices are trending up, down, or sideways is fundamental. Trends are characterized by sequences of higher highs and higher lows (uptrend) or lower highs and lower lows (downtrend)

• Support and Resistance Levels: These are price levels where a security tends to stop and reverse direction, helping analysts predict potential entry or exit points

• Technical Indicators: Mathematical tools derived from price and volume data, such as moving averages, Relative Strength Index (RSI), Moving Average Convergence Divergence (MACD), oscillators, and stochastics, are used to generate buy or sell signals and gauge momentum or overbought/oversold conditions

• Market Sentiment Indicators: Some analysts incorporate sentiment data like put/call ratios, short interest, and implied volatility to understand market psychology and potential price moves

• Time Frames: Technical analysis can be applied over various time frames, from minutes for day traders to months or years for long-term investors, depending on the trading style

Purpose and Assumptions

• Technical analysis assumes all relevant information is already reflected in the price, so it focuses solely on price action and volume rather than fundamental company data

• It is based on the belief that price movements tend to repeat due to collective investor behavior, making historical price patterns useful for forecasting

• It helps investors and traders determine optimal entry and exit points, manage risk, and identify the strength or weakness of a security relative to the market or sector

In summary, technical analysis looks at historical price and volume data, chart patterns, trends, support/resistance levels, and technical indicators to evaluate and predict future price movements for investment decisions