Technical Analysis

What is Technical Analysis?

Technical analysis or "charting" is the study of price and volume behavior in financial markets in order to anticipate their future performance. I have deliberately used the word "anticipate" rather than "forecast" or "predict":

The market can go up or down at any time -- it is only the probability (of each move) that varies.

Technical Analysis - Not An Exact Science Technical Analysis should not be used to make predictions because we never know the outcome of a particular pattern or series of events with 100 per cent certainty. The best that we can hope to achieve is a probability of around 80 per cent for any particular outcome, which means that something unexpected will occur at least one in five times. My approach is to assign probabilities to each possible outcome. Assigning actual percentages would imply a degree of precision which, is normally unachievable. Most of the time, however, we can tell that price is at least twice as likely to move in a certain direction, as it is to move in the other. That is sufficient edge for a good trader to out-perform the general market.