Technical analysis is the oldest analytical approach dealing with the development of prices of securities or commodity prices. The application of some basic principles to their rice markets in Asia have been commonplace in the 17th century. In theory, the basic principles of technical analysis, summarized and further developed by Charles H. Dow first and then his followers WP Hamilton and R. Rhea about 100 years ago. During the 30 years to complete was the Dow Theory, which is the whole basis of technical analysis. Charles H. Dow was based on the assumption that the majority of shares in the market shows a similar behaviour, and therefore, market trends easily described using stock indices. For these purposes, created two of the Dow stock indexes, and Dow Jones Industrial Average and the Dow-Jones Average Rail.

The essence of the Dow Theory is contained in the theses formulated by Charles Dowem:

€ Stock indexes involve all relevant information.
€ Movements in share classes can be broken down into three basic trend movements, which are primary, secondary and tertiary trend.
€ Future course development (ie, trend continuation or change) can be derived from previous market situation.
€ Volume must confirm the trend.
€ Based on the current development course created by Dow Lines are able to signal future movements Kurz.
€ Stock indexes must confirm each other.

Technical analysis is typical that is not so much interested in the fundamental factors that influence the movement of courses, but rather focuses on the activity and movement in financial markets. Technical analysts had assessed that the movement of the exchange rate financial instrument operates in addition to fundamental factors, psychological factors or irrational, unpredictable character fundamentally.

Technical analysts evaluate attempts to calculate the underlying intrinsic value (the "right price") as irrelevant, unnecessary, inaccurate. Underlying intrinsic value in their opinion not adequately describe the situation, because it will always ignore the factors that are not able to cover, ie, psychological and other influences fundamental.

The success of the application of technical analysis to a large extent depends on the analyst skills, experience, but also on its subjective assessment. It is therefore not surprising that two analysts using the same graph do not come to the same conclusions. Technical analysis is therefore often seen as "a subjective art."

Basic principles of technical analysis can be summarized in just three theses, which, however, capture and tell all:

€ The market discounts everything

This first principle of technical analysis assumes that the classes of financial instruments reflect all information that is known and which are relevant in relation to the financial instrument. The reaction rate is related to the information, but gradual, slow. This gradual adaptation of the course the new situation constitutes adequate then the emergence of trends in the development of courses that take some time. The technical analyst is not interested in the causes of fluctuations; the subject of his interest is only the movement of the exchange rate itself.

€ Prices are subject to trends

in the Patterns of fluctuations of financial instruments whose existence they believe the technical analysts attempt to identify the different procedures. If they are successful in their efforts and time and correctly recognize the type of model, are able to predict the further development of the course. Of course, this idea assumes that there is a group of models whose form and analyst's base is sufficiently known.

€ History repeats itself

for more than a century, a technical analysts dedicated search and categorization of observing certain patterns. Based on his observations and concluded that most patterns are repeated, because the human psyche in time almost unchanged.

Technical analysis is the so-called market timing , or timing . This means that technical analysis helps us find an appropriate moment to enter the market, but also to exit from the market. Simply put, technical analysis tells us when to buy and stop commerce (buying positions / long / buy) or when to sell and end the trade (short position / short / sell).

The tools of technical analysis are the analysis of price formation in the charts and analysis of technical analysis indicators.
Summary

€ Technical analysis is used mainly for short-term investment horizon (days, weeks, months).
€ Answers the question "what happens when".
€ It is used for timing (market timing).
€ Does not attempt to calculate the intrinsic value (the "right price") financial instruments.
€ It relies on public history (ie, only past) information.