Technical analysis is a trading methodology that analyses statistical trends acquired from trading activity, such as price movement and volume, to evaluate investments and uncover trading opportunities. Past trading activity and price variations of an asset, according to technical analysts, might be useful predictors of future price fluctuations. Technical analysis methods are used to examine how variations in price, volume, and implied volatility are affected by supply and demand for securities. Technical analysis is frequently used to produce short-term trading signals using various charting tools, but it may also be used to enhance the assessment of a security’s strength or weakness in relation to the larger market or one of its sectors. This data aids analysts in improving their overall valuation estimates.
Technical analysis is an investment methodology that evaluates investments purely on the market activity surrounding them, with no looking to the actual operations or value of the company itself.
Relevant factors that will be looked at include:
Historical pricing of the shares
Trading volumes over time
Industry trading trends
The goal of this analysis is to capitalize on pricing opportunities and trends that can be identified in the market activity around each share. As the methodology is purely based on historical market activity this is considered to be a backward looking methodology. Technical analysis helps in forecasting the future price of share on basis of historical movements of price.