The Basics of Chart Patterns
Price is Everything
by Christopher Smith
Technical analysis is the study of historical
price performance in an effort to predict future price performance.
Price is a very important statistic in the world of technical analysis because
it is the only accurate measure of investor sentiment -- it is the
intersection of supply and demand.
Technical analysis makes the assumption that investor
sentiment is at least and possibly a more important determinant of price than
fundamental factors like earnings, revenues and profit margins. Given this outlook many draw the conclusion
that fundamental and technical analysis are at odds but nothing could be
further from the truth. Technical analysis is the study of price and the
factors that determine price. It would be silly to believe that
fundamental analysis does not play a role in shaping investors perception of. value.
The technical analyst believes that all perceptions of value are encapsulated
in one statistic, price.
There are three important principles that
govern all technical analysis. First, price is NOT random, second, price
anticipates fundamental change and third, the relationship between price and
time is linear.