The tools of technical analysis are mainly focused on analyzing current price action, candlestick patterns
, supply and demand in a security based on its historical price, volume, and volatility.
Charles H. Dow, founder of the American newspaper The Wall Street Journal was the first to observe (1884) that the markets repeat themselves continuously, creating price patterns.
These price patterns include support and resistance at price levels, different trends and momentum changes.
Price action can also be divided into fractals meaning that price pattern repeats themselves in shorter and longer time period i.e. technical works on all time frames, monthly to one minute.
The technical analyst study price charts to make forecasts and trade decisions form.
Some technical analysts say that all information is reflected in the price of a security and that investors emotional responses to price movements create price patterns since the investors have different information and knowledge used to their advantage.
Historical price patterns repeat itself because of the trading between buyers and sellers (demand and supply).
Because of the importance of supply and demand, you must master this concept to become a successful technical trader is support and resistance.
Some technical analysts also use technical indicators. A technical indicator is a mathematical formula calculated on the price of the security.
Today there are hundreds of technical indicators used to help traders make buy and sell decisions.
Technical analysis is the best analysis to use when swing- and day trading securities. Since most securities price moves in waves – a technical analyst uses strategies to find the best opportunities to profit from these moves.