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Course: The foundations of technical analysis

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Assumptions

Technical analysis is based on several key assumptions, including:

  • Market Efficiency: Technical analysts believe that the market is efficient, meaning that all available information about a security is reflected in its current price. This means that past price and volume data can be used to make informed predictions about future price movements.
  • Price Trends: Technical analysts believe that price trends tend to persist over time, and that past price trends can be used to predict future price movements.
  • Market Psychology: Technical analysts believe that market participants act in predictable ways, and that these actions drive market trends. For example, technical analysts may believe that investors tend to buy into a stock after its price has been rising, and sell after its price has been falling.
  • Charts and Indicators: Technical analysts use charts and technical indicators to identify patterns and trends in the market. They believe that these tools can provide valuable insights into a security's price movements.

It is important to note that these assumptions are not universally accepted and that some investors and analysts may have different opinions on the validity of technical analysis.

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