The Basics of How Technical Analysis Works for Investors

Michael N. Kahn, CMT

When investment professionals as a group make their decisions, they often analyze such fundamental information as economics, politics, and demographics. They look back to the past to forecast what may happen in the future. This does not mean that they are consulting a magic oracle, but rather they are employing technical analysis of the markets. This discipline relies on generous amounts of historical price data that is both accurate and readily available to their computer applications.

Technical analysis is based on human behavior, but it is not a study in psychology. Investors and speculators react the same way to the same types of events again and again, and this ...