To answer the question of "how" one analyzes, the technician employs a vast array of tools. Support and resistance levels act as the floor and ceiling of price movement, marking areas where supply and demand reach a stalemate. Moving averages help smooth out price "noise" to reveal the underlying trend. Beyond simple price action, oscillators like the Relative Strength Index (RSI) or MACD provide insight into market momentum, signaling whether an asset is "overbought" (too expensive) or "oversold" (a potential bargain). The Art of Interpretation
The goal of technical analysis is to identify a trend in its early stages and ride it until there is evidence of a reversal. This follows the Newtonian law of inertia: an object in motion tends to stay in motion.
The foundation of technical analysis rests on three specific premises:
Technicians believe that everything that can possibly affect price—fundamental, political, or psychological—is reflected in the market price. Therefore, studying price action is all that is required.
