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1 Underlying Assumptions of Technical Analysis
2 Advantages of Technical Analysis
Chapter: 13 Technical Analysis (Charting)

Section: 1 Introduction

Technical analysis focuses more on the past price movements of a company than on the underlying fundamental determinants of future profitability. In most cases, it attempts to exploit recurring and predictable patterns in asset prices to generate abnormal trading profits. It is essentially a reflection of the idea that the stock market moves in trends that are determined by the changing attitudes of investors to a variety of economic, monetary, political, and psychological forces. The art of technical analysis, as it is as much of an art as it is a science, is to identify changes in such trends at an early stage and to maintain an investment posture until a reversal of that trend is indicated. Technical analysts do not deny the value of fundamental information and most believe that eventually asset prices will “close in” on their fundamental values. However, they believe that shifts in market fundamentals can be discerned before the impact of those shifts is fully reflected in prices. As the market adjusts to a new equilibrium, astute traders can exploit these price trends.