Whether in the form of stock market prices surrounded by lines and arrows, or red and green “candles”, technical analysis can be found wherever there’s uncertainty related to speculation.
Technical analysis first appeared in the 18th century in Japan, but it was not until the 20th century that it gained recognition in the West. However, it is now used by a growing number of traders who want to answer this simple but crucial question in trading: how will the price of a financial product evolve ?
Based on the study of price charts, technical analysis is underpinned by three main principles.
There is no need to try to catch the market off guard by relying on company results or statistics ! From a technical analysis point of view, this has already been taken into account by the market. The only useful parameter for determining price trends is therefore the behaviour of the price itself, and in no case the data that caused the price to change.
Technical analysis describes three trends for a stock : up, down or stagnant. Roughly summarized, it is by identifying these trends that the trader will determine if it is time to sell (bearish trend), buy (bullish trend) or if the stock is in a period of uncertainty (stagnation) where waiting is the best strategy.
Trading based on technical analysis considers that investors will collectively repeat the behaviors and mistakes of those who have gone before them and that recognizable and predictable patterns can therefore be deduced. Recognizing such patterns allows traders to determine the best strategy for a given financial product and maximize their chances of profit.
In conclusion, although technical analysis is a very powerful tool, it is better to look at it as an art rather than a science. The translation of prices into trends must be combined with correct interpretation and experience to avoid making the mistake of inaccurate predictions.