Technical Analysis

The principles of technical analysis is derived from the observation of financial markets over hundreds of years. The oldest known example of such analysis was a method developed by Homma Munehisa during early 18th century which evolved into the use of candlestick techniques, and is one of the main charting tools used today.

Dow Theory derived from 255 Wall Street Journal editorials written by Charles H. Dow inspired the use and development of modern technical analysis from the end of the 19th century. Other pioneers of such analysis include Ralph Nelson Elliott and William Delbert Gann who developed their respective techniques in the early 20th century.

Market action discounts everything
Technical analysts believes that it is redundant to do fundamental analysis and ignores all the fundamental information of the companies. They hold that prices discounts all fundamental data before investors are aware of them. Some traders use technical or fundamental analysis exclusively. While others especially big funds and smart money use both types of analysis to make trading decisions.

History tends to repeat itself
Technical analysts primarily use stock (price) charts and indicators, which are typically mathematical derivatives of price or volume. They believe that investors tend to collectively repeat the past behavior which forms recognizable patterns on the chart. They seek to identify these price patterns and trends in financial markets and attempt to exploit them.