Technical analysis

"Technical analysis is the study of market action, primarily through the use of charts, for the purpose of forecasting future price trends.".[1] In its purest form, technical analysis considers only the actual price behavior of the market or instrument, based on the premise that price reflects all relevant factors before an investor becomes aware of them through other channels.
Technical analysis is widely used among traders and financial professionals, and some studies say its use is more widespread than is "fundamental" analysis in the foreign exchange market.[2][3] Academics such as Eugene Fama say the evidence for technical analysis is sparse and is refuted by the efficient market hypothesis,[4][5] yet some Federal Reserve and academic studies include evidence that supports technical analysis.[6][7][8] MIT finance professor Andrew Lo argues that "several academic studies suggest that…technical analysis may well be an effective means for extracting useful information from market prices."[9] Burton Malkiel argues, "Technical analysis is anathema to the academic world." He further argues that under the weak form of the efficient market hypothesis, "...you cannot predict future stock prices from past stock prices."[10]

Technical analysts (or technicians) identify non-random price patterns and trends in financial markets and attempt to exploit those patterns [11] While technicians use various methods and tools, the study of price charts is primary. Technicians especially search for archetypal patterns, such as the well-known head and shoulders reversal pattern, and also study such indicators as price, volume, and moving averages of the price. Many technical analysts also follow indicators of investor psychology (market sentiment).

Technicians seek to forecast price movements such that large gains from successful trades exceed more numerous but smaller losing trades, producing positive returns in the long run through proper risk control and money management.

There are several schools of technical analysis. Adherents of different schools (for example, candlestick charting, Dow Theory, and Elliott wave theory) may ignore the other approaches, yet many traders combine elements from more than one school. Technical analysts use judgment gained from experience to decide which pattern a particular instrument reflects at a given time, and what the interpretation of that pattern should be. Technical analysts may disagree among themselves over the interpretation of a given chart.

Technical analysis is frequently contrasted with fundamental analysis, the study of economic factors that some analysts say can influence prices in financial markets. Pure technical analysis holds that prices already reflect all such influences before investors are aware of them, hence the study of price action alone. Some traders use technical or fundamental analysis exclusively, while others use both types to make trading decisions.

http://en.wikipedia.org/wiki/Technical_analysis