Technical analysis is the evaluation of a financial asset through the study of historical market statistics. Technical analysts don’t believe that market price movements are random. Rather, they believe that these movements create identifiable patterns and trends that repeat over time. Consequently, they use this analysis to try and forecast the future price movements of financial assets, or securities.
Typically, technical analysis is based on three theories:
The market discounts everything. In other words, everything you need to know about a security can be found in its price. For this reason analysis should focus on price charts and movements.
Price moves in trends. Market prices are more likely to continue past trends than to move erratically.
Trends repeat over time. Technical analysts believe that history tends to repeat itself. Therefore, past trends can be used to help interpret future price movements.