Principles of technical analysis
What technical analysis assumes
3 min
Technical analysis is the study of price and volume to judge where a market may go next. Instead of asking what a company is worth, it asks what the chart is doing — and rests on three working assumptions.
The three assumptions
- Price discounts everything. Every known fact, hope and fear is already reflected in the price. So you study the price itself rather than trying to out-research the crowd.
- Prices move in trends. Moves are not purely random; they tend to persist in a direction until something changes them. Finding and following a trend is the core activity.
- History tends to rhyme. Because markets are driven by human behaviour, recognisable patterns repeat — not identically, but often enough to be useful.
What this does and does not give you
Technical analysis gives you a framework of probabilities, not certainties. A setup that worked seven times out of ten is valuable, but the three losses are guaranteed to come and you cannot know in advance which trade is which.
That is the single most important idea in this whole track: no indicator and no pattern is a crystal ball. Every tool here describes the past and present of price. The future is always a probability, which is why risk management — sizing and stops — matters more than any signal.
This content is for educational and informational purposes only and is not investment, financial, tax or legal advice. Trading and investing carry risk, including the possible loss of capital. Any performance shown by third-party tools is hypothetical and not a promise of future results. Do your own research and consider professional advice before making any decision.