The theory is that a person can look at historical price movements.
And from the historical price movements, determine the current trading conditions and potential price movement.
Someone who uses technical analysis is called a technical analyst.
Traders who use technical analysis are known as technical traders.
The main evidence for using technical analysis is that all current market information is reflected in the price.
Technical traders generally ascribe to the belief that “It’s all in the charts!”
This simply means that all known fundamental information is priced into the current market price.
If price reflects all the information that is out there, then price action is all one would really need to make a trade.
Rhythm and Flow
Technical analysis looks at the rhythm, flow, and trends in price action.
Now, have you ever heard the old adage, “History tends to repeat itself“?
Well, that’s basically what technical analysis is all about!
If a certain price held as a major support or resistance level in the past, forex traders will keep an eye out for it and base their trades around that historical price level.
Technical analysts look for similar patterns that have formed in the past and will form trade ideas believing that price could possibly act the same way that it did before.
It is NOT so much about prediction as it is about POSSIBILITY.
Technical analysis is the study of historical price action in order to identify patterns and determine possibilities of the future direction of price.