What is Technical Analysis ?

We often listen about various technical events and terms (like breakout, resistance support) on the business news channel or read about the patterns in broker reports or tips (Head and Shoulder). All this jargon is part of and related to the Technical analysis of any company, stock, security, or counter (as it is called by traders).


Technical analysis is different to the fundamental analysis of the security or company. At the most basic level, a technical analyst approaches a security from the charts, while a fundamental analyst starts with the financial statements, by looking at the balance sheet, cash flow statement and income statement, a fundamental analyst tries to determine a company's value. In financial terms, an analyst attempts to measure a company's intrinsic value. In this approach, investment decisions are fairly easy to make - if the price of a stock trades below its intrinsic value, it's a good investment. Although this is an oversimplification (fundamental analysis goes beyond just the financial statements).


Technical Analysis supports and complements additional Investment Research, such as Fundamental Analysis.

Technical Analysis is the quantitative side of investment research. It is distinct from Fundamental Analysis, where investors use company and market information (such as earnings, balance sheet, interest rates etc.) to make investment decisions. In contrast, Technical Analysis is based on patterns and relationships in price history.

Definition from the " Fountain of Knowledge" Wikipedia, is like that,

"Technical analysis is a security analysis discipline for forecasting the future direction of prices through the study of past market data, primarily price and volume. In its purest form, technical analysis considers only the actual price and volume behavior of the market or instrument. Technical analysts may employ models and trading rules based on price and volume transformations, such as the relative strength index, moving averages, regressions, inter-market and intra-market price correlations, cycles or, classically, through recognition of chart patterns."