What Is Technical Analysis?
Understanding Technical Analysis
Technical analysis is a method of evaluating stocks and other securities by studying market data, primarily price and volume. Unlike fundamental analysis, which focuses on a company's financials and intrinsic value, technical analysis looks at patterns in historical price data to forecast future price movements.
The Three Core Principles
Technical analysis is built on three foundational ideas that have guided traders for over a century:
- Price discounts everything — All publicly available information (earnings reports, economic data, investor sentiment) is already reflected in the current stock price. You do not need to separately analyse every piece of news because the market has already done it for you.
- Prices move in trends — Once a trend is established (upward, downward, or sideways), it is more likely to continue than to reverse. Identifying trends early is one of the most powerful skills a technical analyst can develop.
- History tends to repeat itself — Market psychology drives predictable patterns. Because human emotions like fear and greed have not changed, the patterns created by those emotions recur across different time periods and markets.
A Brief History
The roots of technical analysis date back to 18th-century Japanese rice traders who developed candlestick charting. In the West, Charles Dow — co-founder of the Wall Street Journal — laid the groundwork with Dow Theory in the late 1800s. Today, technical analysis is used by traders around the world, from Wall Street to the Nairobi Securities Exchange.
Why Learn Technical Analysis?
Technical analysis gives you a structured way to make buy and sell decisions. Rather than relying on tips or gut feelings, you use objective indicators and signals. On the NSE, where information about smaller-cap stocks can be scarce, chart patterns and indicators provide valuable insight that complements the limited publicly available research.
Technical analysis is not about predicting the future with certainty. It is about putting the odds in your favour by reading what the market is telling you right now.