7.1What is technical analysis?
1What is it?
Technical analysis studies past price and volume to find trends, support and resistance levels, and patterns that may help with buy/sell timing.
2Why does it exist?
Price reflects what all buyers and sellers are doing. Technicians believe prices move in trends and that crowd behaviour repeats.
3Diagram
| Fundamental analysis | Technical analysis | |
|---|---|---|
| Question | What to buy? | When to buy/sell? |
| Looks at | Business, profits, debt | Price, volume, patterns |
| Time frame | Years | Days to months |
| Main risk | Overpaying for quality | False signals |
4Risks
- Signals fail frequently.
- It is easy to "see" patterns that aren’t there.
- Over-reliance leads to overtrading.
5Quick revision
- TA uses price and volume.
- Best for timing and risk control.
- Never a guarantee.
6Knowledge check
Q1. Does TA look at company profits?Show answer
No, it looks at price and volume.
Q2. Can TA predict prices with certainty?Show answer
No.
Q3. How can TA complement fundamentals?Show answer
Fundamentals choose what to buy; TA helps with when and where to place stops.