Module 3: Technical Analysis

Module Introduction

Technical analysis represents a fundamentally different approach to stock market analysis compared to the fundamental analysis we explored in Module 2. While fundamental analysis focuses on a company’s intrinsic value based on financial performance and business prospects, technical analysis concentrates on price movements and market behavior to identify trading opportunities and optimal timing for investment decisions.

The core premise of technical analysis is that all available information about a stock is already reflected in its price, and that price movements follow identifiable patterns that tend to repeat over time. Technical analysts believe that by studying historical price and volume data, they can predict future price movements and make profitable trading decisions.

This approach is based on three fundamental assumptions: first, that market action discounts everything, meaning that all factors affecting supply and demand are reflected in price movements. Second, that prices move in trends, and these trends tend to persist until something causes them to reverse. Third, that history repeats itself, as market participants tend to react to similar situations in predictable ways, creating recurring patterns in price charts.

Technical analysis is particularly valuable for timing investment decisions, whether you’re a long-term investor looking to optimize entry and exit points or a short-term trader seeking to profit from price movements. It complements fundamental analysis by helping investors determine when to buy or sell stocks that fundamental analysis has identified as attractive.

This module will teach you to read and interpret various types of price charts, identify and trade chart patterns effectively, apply technical indicators for market timing decisions, develop systematic approaches to entry and exit strategies, and understand advanced technical concepts that can enhance your market timing abilities.

While some investors view technical and fundamental analysis as competing approaches, the most successful investors often combine both methods, using fundamental analysis to identify what to buy and technical analysis to determine when to buy it.