What it means
Technical analysts believe that prices reflect all available information and that patterns repeat because human behaviour is consistent. They study trends, support and resistance levels, volume and momentum to judge whether buyers or sellers are in control.
Their tools include price charts, moving averages, relative strength indicators and chart patterns. They may cover shares, currencies, commodities, bonds or entire indices, and they usually express views in terms of levels, such as a price to buy, a target and a level at which the idea is wrong.
Technical analysts work in banks, brokerages, hedge funds and asset managers, and many work independently. Their reports often appear in market commentary and are used by traders, who care about timing, and by portfolio managers, who use charts to refine entry and exit points.
Finance directors sometimes read them too when deciding the timing of a currency purchase. The profession has formal qualifications.
Bodies in several countries offer designations such as the Chartered Market Technician, which require passing exams on analysis methods, risk management and ethics. Many analysts also study statistics and programming so they can test their ideas on historical data.
A good technical analyst is disciplined. They define the conditions for an idea before putting it on, state clearly what would prove it wrong and respect stop levels, because even the best chart readers are wrong a significant share of the time.
Technical analysts are often paired with fundamental analysts. A fundamental view says what to own, while a technical view helps decide when to buy or sell, and combining the two can improve decisions.
Disagreement between the two views is itself useful, because it prompts the team to ask what the market might know that the model does not.
In practice
Real-world examples.
Example
A broker's technical analyst publishes a note saying a bank share has broken above resistance at $32 with a target of $36 and a stop at $30. Clients use these levels to plan their trades. The note also lists the company's results date, since a surprise announcement could override the chart.
Example
A commodity trading firm employs an analyst to study oil price charts. Her work guides when the firm adds to or reduces hedges against price moves. She tracks the same levels on related markets, as links between oil, currencies and shares can strengthen or weaken a signal.
Example
A pension fund hires an independent analyst to advise on timing the sale of a large holding. He recommends selling in stages, using resistance levels as guides, to avoid pushing the price down. The sales are spread over several weeks, which reduces the market impact and the risk of poor timing.
Formula
Calculation
Simple moving average = Sum of closing prices over n days / n
A technical analyst calculates a five-day moving average of a share. The last five closing prices are $48, $50, $49, $51 and $52, which add up to $250. The moving average is $250 / 5 = $50. With the latest close of $52 above the average, the analyst may say the share is trading in an uptrend.Case study
Seen in the real world.
Falcon Peak Asset Management is an illustrative, fictional fund that relied only on fundamental analysis. Its portfolio manager, Ines, found that good companies sometimes fell sharply after she bought them.
She hired a technical analyst, Omar, to review the timing of entries. Omar recommended buying in three stages and avoiding purchases while a share was falling below its 200-day moving average.
In this fictional story, the average entry price improved and the fund suffered smaller early losses. Ines concluded that the analyst's greatest contribution was discipline, not prediction. Omar also wrote a short monthly review showing every call the team had made, whether it worked and why. Ines found that the open record of misses made the whole team more careful and less attached to their own views.
Watch out
Common mistakes.
- Assuming a technical analyst can predict prices with certainty.
- Following a chart signal without a defined exit level if it proves wrong.
- Treating technical and fundamental analysts as rivals, when many firms use both together.
Questions
People also ask.
What does a technical analyst do all day?
They monitor charts and indicators, identify trends and levels, write notes or advise traders, and review the results of earlier calls. Much of the job is communicating clear levels to people who must act quickly.
Do technical analysts need qualifications?
There is no universal requirement, but recognised designations such as the Chartered Market Technician show formal training. Employers also value a documented record of past calls and a clear risk process.
How is a technical analyst different from a quant?
A technical analyst mainly reads charts and indicators, while a quantitative analyst builds mathematical models and tests them statistically, although the two fields overlap.
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