Technical analysis

Technical analysis is an approach to evaluating a stock based on the study of its historical price and trading volume, rather than on the company's financial statements, competitive position, or other fundamentals. The core assumption behind the discipline is that a stock's price already reflects all available information at any given moment, and that price and volume data contain recurring patterns of investor behavior that can help anticipate future price movement.

Practitioners of technical analysis use a wide toolkit built around this assumption. Chart patterns, such as head and shoulders or double tops, are used to identify shapes in price history believed to precede particular outcomes. Indicators built from price and volume, such as moving averages, the relative strength index, and on-balance volume, are used to measure trend direction, momentum, and the strength of buying or selling pressure. Support and resistance levels are used to identify prices where a stock has previously reversed, on the theory that the same levels may matter again.

Technical analysis is often contrasted with fundamental analysis, which studies a company's earnings, cash flow, competitive advantages, and industry conditions to estimate what a business is actually worth. The two approaches are not mutually exclusive, many investors use fundamentals to decide what to buy and technicals to help decide when to buy or sell, timing entries and exits around chart signals even when the underlying investment decision is driven by the business itself. Critics of technical analysis argue that patterns identified in hindsight can be unreliable predictors of future performance, while proponents argue that price action reflects the collective psychology of market participants in a way that fundamentals alone cannot capture.