There are three main points that a technical analyst applies:

A. Market action discounts everything. Regardless of what the fundamentals are saying, the price you see is the price you get.

B. The price of a given security moves in trends.

C. The historical trend of a security will tend to repeat.

Of all the above points the most important of them is point A. it is also important for you to understand this point, as it is the basis of technical analysis.

When you look at the price of any financial instrument as a technical analyst you believe that is the true value of the instrument as the market sees it.

Using a technical analysis, you believe that all the factors that effect price, including, fundamental, political and psychological have all been built into the price you see.

This means that anything that can affect the price of a security has already been allowed for by the market participants.

Technical analysts look at charts the same way doctor would look at x-rays. They examine the charts for information on the future direction of the markets.

Most traders classify themselves as either Fundamentalists or Technicians. The truth is that there is a lot of common ground between the two and the best approach I have found is to take note of both approaches.

For the purpose of this chapter we shall concentrate on technical analysis.

This is how I approach the market but at the same time I am aware of any big announcements that may be coming out e.g. Interest rate changes.

You should spend some time analyzing the different macro economic factors and their impact on the stock market. I will eventually add it to the trading course but for now I suggest you get an economic calendar which you can find for free on many sites the street.com Msn money and yahoo finance.

We will obviously look into the different indicators used in technical analysis so let's leave it at that for now.