Once a trend has been established, the future price movement is more likely to be in the same direction as the trend than against it. “Trade with the trend” is the basic logic behind Technical Analysis. This only leaves the analysis of price movement, which technical theory views as a product of the supply and demand for a particular stock in the market. Technical Analysis assumes that the company’s fundamentals, along with broader economic factors and market psychology, are all priced into the stock, removing the need to actually consider these factors separately.
The three most important bases of Technical Analysis are: It takes into account everything (barring the ACTS of GOD) that is likely to impact the prices, including fundamental reasons, stock specific news, results, events affecting same sector’s stocks, political happenings and so on. determine the entry levels, the stop-losses, as well as the target levels. It is a very effective tool to time the markets, i.e. intraday – daily – weekly or even yearly data and is applicable to stocks, indices, commodities, futures or any tradable instrument where the price is governed by the forces of supply and demand.
Technical Analysis works across all timeframes i.e. Technical Analysis is the art of forecasting future price movement based on past price action, volume on a chart and applying various studies and indicators to it.
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