Many people listen to the news every night, and hear the economic reporters talking about how the stock market has closed up or down by a certain number of points. Even though many people hear this information every day, they really have no idea what these figures mean for the health of the market, or the economy. Many people seem to think that changes in the value of stocks on the market is something to be avoided, when in actuality, there would be no possibility for anyone to make money on the market if there weren't a natural cycle of ups and downs. Technical analysis is the method whereby investors evaluate these cycles, and interpret their meaning for the future of a certain stock.

In case you've never heard of technical analysis before, you should know that it is a method of scrutinizing securities through analysis of price movements created by market activity, as well as momentum and volume of trade. Technical analysts will be the first to tell you that this method of market evaluation isn't interested in a security's intrinsic value, but is instead focused on the way that trends and patterns in price can be used to suggest a stock's potential future activity. It isn't the only method of market evaluation, but technical analysis has become very popular among relatively short term traders.

In order to truly understand technical analysis, it's important to understand its opposite cousin, fundamental analysis. Unlike technical analysts, which are concerned only with prices and the way that they have fluctuated over time, fundamental analysts are more interested in the qualitative data, like revenue levels, expenses, assets, and liabilities as well as all the other financial aspects of a company. Fundamental analysts are also interested in public opinion of a company, and prospective demand for its products.

Technical analysis is a successful evaluation method because it is based on three core assumptions, and which bring enhanced meaning to the charts and signals that go along with it. Technical analysts firmly believe that the market has already accounted for outside influences one the prices are posted, eliminating the need to worry about all of the financial factors so important fundamental analysts, because they are reflected in the price of the security. The second assumption is that price moves in trends, and once a trend is established, it's unlikely to be altered unless something interrupts it. Lastly, technical analysis posits that history tends to repeat itself, meaning that past patterns can be used to predict the future.