Section: 1 Introduction

Sub Section: 1 Underlying Assumptions of Technical Analysis

Technical analysis is based on the examination of prior price and volume data to determine past market trends from which they predict future behavior for the market as a whole and for individual securities. Several assumptions lead to this view of price movement:

1.  The market value of any good or service is determined solely by the interaction of supply and demand.

2.  Supply and demand are governed by numerous rational and irrational factors. Included in these factors are those economic variables relied on by the fundamental analyst as well as opinions, moods, and guesses. The market weights all these factors continually and automatically

3. Disregarding minor fluctuations, the prices for individual securities and overall value of the market tend to move in trends, which persist for appreciable lengths of time.

4. Prevailing trends change in reaction to shifts in supply and demand relationships. These shifts, no matter why they occur can be detected sooner or later in the action of the market itself.

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