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What is Technical Analysis?

Technical Analysis (also referred to as chart analysis), is in its purest form, the analysis of the price movement of any market that is freely traded. This includes the analysis of financial instruments such as stock indices, currencies and interest rate products; securities; and commodities. Technical Analysis can also include the study of volume and open interest (in futures markets).

Technical Analysis is a term that includes a broad range of methodologies. Most techniques are reactive or trend following in nature. That is, they derive signals once either prices or indicators that are a derivative of price (such as moving averages or measures of price momentum) break or achieve certain levels.

Other techniques such as the Elliott Wave Theory are predictive, interpreting past price action to predict future price movements, or to at the very least provide an indication of underlying strength or weakness. This is, once properly understood, one of the most, if not the most powerful methodology available to the Technical Analyst.

An important dimension that many market technicians also analyse is the time dimension, analysing fixed and variable cycles. The Fibonacci number sequence and many of the Gann methodologies can be considered as part of this category.

Wave 3 Technical Trading utilizes a blend of Elliott Wave Theory, the Fibonacci number sequence, and trend following techniques.


Recommended reading:

Prechter R.,  The Major Works of R.N. Elliott.

Precher,R., and Frost, A.J.,  The Elliott Wave Principle: Key to Stock Market Profits

Eng, W.F.  The Technical Analysis of Stocks, Options & Futures