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There are two methods of analysing securities to make investment decisions: fundamental and technical analysis. Fundamental analysis involves analysing the characteristics of a company. This information is used to estimate the company’s value. Technical analysis approaches the subject in a totally different manner. It does not take into account the value of a company. Technical analysts are only interested in the price movements in the market.

There are many fancy and sophisticated tools technical analysts use. The underlying factor in all these tools is the study of supply and demand in a market in an attempt to determine what direction, or trend, will continue in the future. In simple words, technical analysis attempts to understand the emotions of the other players in the market. When you understand the benefits and limitations of technical analysis, you can use it to your advantage to become a better trader or investor.

The two main pieces of data technical analysts use most when looking at a stock is its last price and volume. With this information graphed over a length of time, charts are formed, and patterns can be identified to suggest future activity.

Just as there are many investment styles in fundamental analysis, there are also many different types of technical analysis tools and techniques. Some people rely on chart patterns. Others use technical indicators and oscillators. Most people use a combination of the two. Both versions exclusively look at the historical price and volume of data. Unlike fundamental analysis, technical analysts don’t care if the stock is undervalued, or overbought. The only thing of importance to the technical analyst is the historical stock Prices. This information can help predict the security’s future movement.

There are three basic assumptions made when you use technical analysis to analyse charts:
- The market discounts everything
- Prices move in trends
- History tends to repeat itself.

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