Technical analysis is the attempt to forecast stock prices on the basis of market-derived data.( i.e. Demand and Supply).
What Is Technical Analysis? Technical analysis is a method of evaluating securities by analyzing the 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
R.N. Elliot formulated this idea in a series of articles in Financial World in 1939.
Elliot believed that the market has a rhythmic regularity that can be used to predict future prices.
The Elliot Wave Principle is based on a repeating 8-wave cycle, and each cycle is made up of similar shorter-term cycles (“Big fleas have little fleas upon their backs to bite 'em - little fleas have smaller fleas and so on ad infinitem”).
Elliot Wave adherents also make extensive use of the Fibonacci series.
As you can see in Figure, support is the price level through which a stock or market seldom falls (illustrated by the blue arrows). Resistance, on the other hand, is the price level that a stock or market seldom surpasses (illustrated by the red arrows).
These support and resistance levels are seen as important in terms of market psychology and supply and demand. Support and resistance levels are the levels at which a lot of traders are willing to buy the stock (in the case of a support) or sell it (in the case of resistance).
Round numbers like 10, 20, 35, 50, 100 and 1,000 tend be important in support and resistance levels because they often represent the major psychological turning points at which many traders will make buy or sell decisions.
Technical traders take a short-term approach to analyzing the market
Criticism of technical analysis stems from the efficient market hypothesis, which states that the market price is always the correct one, making any historical analysis useless.
The price scale is on the right-hand side of the chart. It shows a stock's current price and compares it to past data points. It can be either linear or logarithmic.
One of the most important concepts in technical analysis is that of a trend, which is the general direction that a security is headed. There are three types of trends: uptrend, downtrends and sideways/horizontal trends.