What is technical analysis?

Patterns, indicators, and the philosophy behind TA.

TL;DR

Technical analysis studies price and volume to forecast future moves. Its premise: everything knowable about a security is already in price, so behaviour can be derived from patterns alone.

Three core assumptions

TA rests on three premises.

→Price discounts everything — fundamentals, news, sentiment all live in price
→Prices move in trends — once a trend establishes, it tends to persist
→History rhymes — patterns repeat because human psychology is consistent

What TA does vs doesn't

TA is good at: identifying levels, measuring momentum, defining risk (entry/stop). TA is bad at: predicting exact tops/bottoms, dealing with one-off macro shocks, working on tiny time frames.

TA vs FA

FA values a security by underlying economics. TA reads the chart. Many pros use FA for what to trade and TA for when. Combining both works best for most.

Worked example

Using TA to define risk on a bullish FA thesis

You believe NVDA's earnings will beat. Express the view with defined risk.

1Thesis (FA)NVDA Q3 will beat consensus
2SetupNVDA at $140, bounced off 50-day MA at $138
3Entry (TA)$140 on bounce
4Stop (TA)$136
5Target (TA)$148 — prior resistance
6R:R1:2

Takeaway

FA tells you what's worth owning. TA tells you when to enter, where you're wrong, where to take profit.

Common mistakes

What to avoid

!Treating TA as a crystal ball — it's a risk-management framework
!Adding 10 indicators — they're all derivatives of price
!Ignoring time-frame context — daily signal is far stronger than 5-min
!Trading patterns mechanically without context

Self-check

Test yourself

Q1Three core TA assumptions?+

Price discounts everything; prices move in trends; history rhymes due to consistent psychology.

Q2Why is TA better at defining risk than predicting tops?+

It identifies levels where a thesis is invalidated more reliably than exact reversal points.

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