Question

2.2 Explain how technical
analysis is used in financial
markets.

Answer 1

Technical analysis is the method of analyzing and taking decisions in the financial markets by observing the market movements, prices, and volumes, etc in the past. The basic concepts used in technical analysis are that history repeats itself i.e. market will repeat what has happened in the past in terms of price movements, etc and there is an inertia associated with the movements e.g. if the price is showing some pattern, it will keep showing the pattern or at least complete the pattern. It will not change what it is doing all of a sudden. Hence, technical analysis is basically finding patterns in the movement of prices through charts, candlesticks etc.