{"id":938221,"date":"2023-06-28T13:15:07","date_gmt":"2023-06-28T10:15:07","guid":{"rendered":"https:\/\/www.etoro.com\/trading\/technical-analysis\/"},"modified":"2025-10-31T13:51:12","modified_gmt":"2025-10-31T11:51:12","slug":"technical-analysis","status":"publish","type":"page","link":"https:\/\/www.etoro.com\/en-us\/trading\/technical-analysis\/","title":{"rendered":"What is Technical Analysis?"},"content":{"rendered":"\n

Technical analysis is used to develop trading strategies based on market data such as trade volumes<\/e-tip> rather than higher-level macroeconomic<\/a> events. Learn what technical analysis is, how it can be used by traders and investors, and how it compares to fundamental analysis.<\/p>\n\n\n\n\n\n\n

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Technical analysis is a data-driven approach that traders use to analyze the financial markets and try and identify trading opportunities<\/strong>. Technical analysis looks at historical market events to try and predict future price moves, and it can be used on its own or in conjunction with other trading strategies<\/a>. <\/p>\n\n\n\n

One of the biggest selling points of technical analysis is that it provides indicators that investors can use to determine when to buy or sell in any <\/strong>market<\/strong><\/a>. <\/strong><\/p>\n\n\n\n

What is technical analysis?<\/h2>\n\n\n\n

Technical analysis is a form of analysis that uses historical data to predict the probability of a future price move<\/strong>. Price data forms the core of technical analysis, but the approach can also incorporate trade volumes and other metrics.<\/p>\n\n\n\n

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The technical analysis approach can involve applying statistical formulas, and utilizing tools such as oscillators<\/e-tip> <\/strong>and stochastics<\/e-tip><\/strong>. Alternatively, it can involve adopting a charting<\/a> approach and noticing patterns<\/a> on a price chart.<\/p>\n\n\n\n

Online brokers provide investors with powerful software tools that analyze statistics on their behalf. From the perspective of an investor or trader<\/a>, technical analysis involves accessing a price chart and establishing which indicator<\/a> gives the best signal.<\/mark><\/p>\n\n\n\n

Why is technical analysis used by traders and investors?<\/h2>\n\n\n\n

Technical analysis can help to generate clues about the levels at which price might bounce off a support level<\/a> or break through resistance. <\/p>\n\n\n\n

Tracking those levels can allow traders to establish whether a market is ranging or <\/strong>trending<\/strong><\/a>, and understanding the underlying conditions of any market is a crucial part of the <\/strong>trading process<\/strong><\/a>.<\/strong><\/p>\n\n\n\n

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Where can you use technical analysis in investing? <\/h2>\n\n\n\n

Technical analysis can be applied to any asset class<\/a>. It can also be used over any time frame, in both short- and long-term strategies.<\/mark><\/p>\n\n\n\n

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Tip:<\/strong>  Once you understand the basics of technical analysis, you can apply it to any market you want to trade.<\/p>\n<\/div><\/div>\n\n\n\n

Technical analysis in stocks<\/h3>\n\n\n\n

Technical analysis can be used to trade stocks, particularly in the short term. For example, day traders might buy and sell stocks to take advantage of short-term pricing anomalies that are identified using technical analysis.<\/strong><\/p>\n\n\n\n

That being said, a large amount of stock market activity is still made up by investors and analysts who use fundamental analysis<\/a> and valuation models<\/a> to determine whether a stock is over or undervalued.<\/strong><\/p>\n\n\n\n

Technical analysis in forex<\/h3>\n\n\n\n

Over the longer term, currency prices are largely determined by macroeconomic factors<\/a> and geopolitical<\/e-tip> events. During the periods when news events<\/a> are not driving price moves, forex technical analysis<\/strong> can help you to spot shorter term trading opportunities.<\/p>\n\n\n\n

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Tip: <\/strong>Over the long-term, forex markets do not have an upward directional bias in the same way that stocks do.<\/p>\n<\/div><\/div>\n\n\n\n

Technical analysis in crypto<\/h3>\n\n\n\n

Technical analysis is a useful tool for those trading the cryptocurrency<\/a> markets, as it incorporates volatility<\/e-tip><\/strong> metrics that can offer an indication that the next big move is about to occur. <\/p>\n\n\n\n

At the same time, trendlines<\/e-tip> and moving averages<\/a> can offer a way to plot the course of <\/strong>coins or tokens<\/strong><\/a> and highlight the levels at which price moves will meet support and resistance.<\/strong><\/p>\n\n\n\n

Technical analysis vs fundamental analysis<\/h2>\n\n\n\n

Fundamental analysis is an alternative method of identifying and managing trades<\/a>. It uses \u201creal-world\u201d information<\/strong>, such as company reports<\/a> and news updates, to establish the fair value<\/e-tip> of an asset. On the other hand, technical analysis focuses on data and chart patterns <\/strong>to predict future price moves.<\/mark><\/p>\n\n\n\n

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Tip: <\/strong>Many traders are naturally drawn to either technical or fundamental analysis, but it is possible to use both<\/a> simultaneously.<\/p>\n<\/div><\/div>\n\n\n\n

There are many differences between technical and fundamental analysis:<\/p>\n\n\n\n

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<\/th>Fundamental Analysis<\/strong><\/th>Technical Analysis<\/strong><\/th><\/tr><\/thead>
Used By<\/strong><\/td>Investors<\/td>Traders<\/td><\/tr>
Time Horizon<\/strong><\/td>Medium- and long-term<\/td>Short-term<\/td><\/tr>
Data Source<\/strong><\/td>Economic reports, news events and industry statistics<\/td>Chart analysis<\/a> and price data<\/td><\/tr>
Good For<\/strong><\/td>Determining if an asset is priced appropriately<\/td>Price entry and exit points and for establishing market conditions<\/td><\/tr><\/tbody><\/table><\/div><\/div><\/figure>\n\n\n\n

Pros & cons of technical analysis<\/h2>\n\n\n\n

Both fundamental and technical analysis have positives and negatives. Combining both approaches into your analysis can balance things out. Below, you can see the advantages and disadvantages of fundamental analysis and technical analysis.<\/p>\n\n\n\n

Fundamental analysis<\/h3>\n\n\n\n
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Advantages<\/div>
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