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Unit 10: Technical Analysis

10.1.1 Basic Technical Assumptions Notes

Before we embark on the actual methods themselves, let us review the basic and necessary
assumptions regarding the technical analysis:
1. The Market Discounts Everything: A major criticism of technical analysis is that it only
considers price movement, ignoring the fundamental factors of the company. However,
technical analysis assumes that, at any given time, a stock’s price reflects everything that
has or could affect the company – including fundamental factors. Technical analysts believe
that the company’s fundamentals, along with broader economic factors and market
psychology, are all priced into the stock, removing the need to actually consider these
factors separately. This only leaves the analysis of price movement, which technical theory
views as a product of the supply and demand for a particular stock in the market.
2. Price Moves in Trends: In technical analysis, price movements are believed to follow
trends. This means that after a trend has been established, the future price movement is
more likely to be in the same direction as the trend than to be against it. Most technical
trading strategies are based on this assumption.
3. History Tends to Repeat Itself: Another important postulate in technical analysis is that
history tends to repeat itself, mainly in terms of price movement. The repetitive nature of
price movements is attributed to market psychology; in other words, market participants
tend to provide a consistent reaction to similar market stimuli over time. Technical analysis
uses chart patterns to analyze market movements and understand trends. Although many
of these charts have been used for more than 100 years, they are still believed to be
relevant because they illustrate patterns in price movements that often repeat themselves.
Technical analysis and fundamental analysis are the two main schools of thought in the financial
markets. As we’ve mentioned, technical analysis looks at the price movement of a security and
uses this data to predict its future price movements. Fundamental analysis, on the other hand,
looks at economic factors, known as fundamentals. Let’s get into the details of how these two
approaches differ, the criticisms against technical analysis and how technical and fundamental
analysis can be used together to analyze securities.

Self Assessment

Fill in the blanks:
1. …………………… analysis and fundamental analysis are the two main schools of thought
in the financial markets.
2. Technical analysis uses chart patterns to analyze …………………… and understand trends.

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Caselet Tourism Trend Analysis

n an ever-changing, dynamic and volatile sector, tourism destination managers need
to be continually adapting to the changing environment in their approach to destination
Imanagement and strategies for destination development and marketing.
Understanding current and forecast trends including economic, social, environmental
trends and changing consumer behaviours is important in responding with an appropriate
strategic approach. Identifying and assessing industry trends can be undertaken through
visitor surveys, visitor profile and statistical research and global and national trend analysis.
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