Technical Analysis: Definition

Technical Analysis

Definition 1) Technical Analysis is the study of data generated by the action of markets and by the behavior and psychology of market participants and observers. Such study is usually applied to estimating the probabilities for the future course of prices for a market, investment or speculation by interpreting the data in the context of precedent.

Source: C1.02: Definition of Technical Analysis; Constitution of the Market Technicians Association, Inc.

Definition 2)Technical analysis is the study of market action, primarily through the use of charts, for the purpose of forecasting future price trends. The term “market action” includes the three principal sources of information available to the technician-price, volume, and open interest. (Open interest is used only in futures and options.) The term “price action,” which is often used, seems too narrow because most technicians include volume and open interest as an integral part of their market analysis. With this distinction made, the terms “price action” and “market action” can be used interchangeably. There are three premises on which the technical approach is based:

  1. Market action discounts everything.
  2. Prices move in trends.
  3. History repeats itself.

Source: Murphy, John. Technical Analysis of the Financial Markets; (c) 1999.

Definition 3) Technical analysis is a method of evaluating securities by analyzing statistics generated by market activity, such as past prices and volume. Technical analysts do not attempt to measure a security’s intrinsic value, but instead use charts and other tools to identify patterns that can suggest future activity. Technical analysts believe that the historical performance of stocks and markets are indications of future performance.