The forecasting of market prices by means of analysis of data generated by the process of trading.
Practitioners’ Definitions
"Technical analysis is the process of analyzing a security’s historical prices in an effort to determine probable future prices."
Achelis (2001), page 4
"It refers to the study of the action of the market itself as opposed to the study of the goods in which the market deals. Technical Analysis is the science of recording, usually in graphic form, the actual history of trading (price changes, volume of transactions, etc.) in a certain stock or in “the Averages” and then deducing from that pictured history the probable future trend."
Edwards, Magee and Bassetti (2001), page 4
"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 technicial—price, volume, and open interest."
Murphy (1999), page 1
"The art of technical analysis, for it is an art, is to identify a trend reversal at a relatively early stage and ride on that trend until the weight of the evidence shows or proves that the trend has reversed. [...] Therefore, technical analysis is based on the assumption that people will continue to make the same mistakes they have made in the past."
Pring (2002), page 3
Definition below taken from the Society of Technical Analyst’s Diploma in Technical Analysis.
Technical analysts believe that:
- The balance of supply and demand, or market action, is the root of price setting.
- A thing is worth what it can be sold for.
- "The Averages Discount Everything" (one of the principles of Dow Theory).
- All hopes, fears and knowledge, including reasonable expectation, is discounted or incorporated in the current price.
- Studying the price is all that is necessary.
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