Charts & technicals
Technical analysis
Studying price and volume history to inform decisions, rather than studying the business.
How it works
Technical analysis treats price as the summary of everything known and looks for patterns in how it moves. Fundamental analysis instead asks what the asset is worth.
The evidence is mixed and specific: momentum and trend effects have reasonable academic support, while most named chart patterns do not.
Where it misleads people
Charts are extraordinarily good at producing patterns in random data. Any rule found by looking at charts until something appears is a candidate for overfitting.
Related terms
- MomentumThe tendency of recent winners to keep outperforming, and losers to keep underperforming, over months.
- Moving averageThe average price over a trailing window, used to smooth out day-to-day noise.
- OverfittingTuning a strategy so precisely to past data that it captures noise instead of a real effect.
- Support and resistancePrice levels where buying or selling has repeatedly appeared in the past.
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