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Technical analysis

Technical analysis is the use of statistics generated by market activity, such as price and volume, to predict future trends in that market. Technical analysis does not try analyize the financial data of a company such as cashflow, dividends and projection of future dividends. This type of analysis is called fundamental analysis.

Technical analysis is based on a variation of the Efficient market hypothesis, which states that all participants in the stock market have equal and instantaneous access to all the information about stocks. Therefore, there is no need to analyze this information, since many other market participants are already doing so, and therefore this information is reflected in the price of the stock. Instead, adherents to this school merely analyze the graphs of the stock price history, trying to see patterns with past events.

The point of view of most traders who use technical analysis is that it is a way of analyzing the past actions of people in a particular market as reflected by their actual transaction history. Until people agree on price but disagree on value, no transaction takes place. They believe that prior actions are useful as a guide to future actions. In particular that transaction data provides information about supply and demand at various price levels.

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