Download Technical Analysis

Technical Analysis
Technical Analysis
Technical analysis is a strategy for evaluating securities (such as stocks or commodities) by examining
data, especially past prices and volume. With the use of charts and other tools, technical analysis seeks
to identify patterns that can suggest future price activity.
Technical analysis is largely based on three assumptions:
1. Market action discounts everything
Technical analysis assumes that a stock's price reflects all factors that could affect the company
- including fundamental factors. Technical analysis rests on the understanding that a company's
fundamentals, along with broader economic conditions and market psychology, are already
priced into the stock, removing the need to examine these factors separately. This only leaves
the analysis of price movement, which is viewed as a product of the supply and demand for a
particular stock.
2. Prices typically move in logical trends
Technical trading is based on the assumption that price movements follow trends. This means
that after a trend has been established, the future price movement is more likely to be in the
same direction as the trend than to be against it.
3. History is largely cyclical
History tends to repeat itself. In the case of technical analysis, this is seen mainly in terms of
price movement. This phenomenon is attributed to market psychology; investors tend to
provide a consistent reaction to similar market events at other times. Technical analysis uses
chart patterns to observe market movements and understand trends.
An Analogy for Technical Analysis
Imagine ordering at a popular restaurant. A typical fundamental analysis approach would be to study
the menu; weighing the pros and cons for each dish, scrutinizing each dish’s perceived price versus
value, taking into account their own preferences and maybe even reading some reviews on the
restaurant before deciding on their order. By contrast, a technical analyst would observe what the
other patrons, especially those who seem to be regulars, are ordering. Disregarding the intrinsic value
of a particular dish, the technical analyst's decision would be based on the patterns or activity of other
diners.
Scotia iTRADE® (Order-Execution Only Accounts) is a division of Scotia Capital Inc. ("SCI"). SCI is a member of the Investment Industry
Regulatory Organization of Canada and the Canadian Investor Protection Fund. Scotia iTRADE does not provide investment advice or
recommendations and investors are responsible for their own investment decisions. ®Registered trademark of The Bank of Nova Scotia.
Used under license. © Scotia Capital Inc. 2015. All Rights Reserved.