Tutorial on Technical Analysis: Does History repeat itself?

The purpose or our educational project is to make financial knowledge more accessible to students, to spread financial culture among general public and to provide regular traders with help to reduce the inherent risk to Stocks Markets. 

As a result we aim to publish a set of short descriptions on basic concepts related to Technical analysis, which is one of the most interesting disciplines used by investors to deal with their daily key dilemma: Should I buy or sell a security?

Technical analysis is as technique for examining a security´s series of historical prices in order to forecast its future behaviour. 

This method consists of a comparison between both its current and its historical price, so that a likely evolution could be determined in advance.

This field of study is based on a hypothesis: that history repeats itself. Having said that, by analyzing the past we can infer a probable security´s future price. Consequently, Technical Analysis considers that Psychology plays a crucial role in the Stocks Markets and that the final price is the result of many human elements´ interactions. From this perspective, the evaluation of past psychological situations acquires a considerable relevance. If the analyst understands how a mass of investors behaved in the past, it can try to foresee the future in so far as a potential analogous market moment is coming.

To understand our approach, look carefully to the next chart, where we propose two possible similar scenarios on the CAC 40´s French index. Even both situations could be subdivided according to an intermediate or short-term perspective. So far, it´s obvious that it´s too early to appreciate if both chronological moments can really be considered analogous.

In March 2009, a new uptrend appears to emerge. But will the CAC 40´s next market movement soar as it happened from 2004 to 2007?

We invite you to express your viewpoint on this issue by linking the proposed case with the Analysis Technical Principle that “the future can be found on the past”.

This first introductory concept involves an essential pillar to understand the whole content of this website. All questions are very welcome. So feel free to ask us for any clarification.