What does technical analysis involve?

Technical analysis primarily focuses on analyzing price trends and trading volume to make trading decisions. By examining historical market data, particularly price movements over time, technical analysts aim to predict future price movements based on patterns and trends. This analysis often involves using various tools and indicators, such as moving averages, relative strength index (RSI), and support and resistance levels.

This method is distinct from fundamental analysis, which involves evaluating a company's financial health through its balance sheet, income statement, and cash flow statement. Technical analysis does not take into account qualitative factors like management quality or market competition, nor does it focus on macroeconomic indicators such as interest rates or GDP growth. Instead, it is strictly rooted in the statistics of trading activity, making it a unique approach in the financial markets.