Technical analysis is a financial markets technique that claims the ability to forecast the future direction of security prices through the study of past market data, primarily price and volume. In its purest form, technical analysis considers only the actual price and volume behavior of the market or instrument, on the assumption that price and volume are the two most relevant factors in determining the future direction and behavior of a particular stock or market.

Technical analysts may employ models and trading rules based, for example, on price and volume transformations, such as the relative strength index, moving averages, regressions, inter-market and intra-market price correlations, cycles or, classically, through recognition of chart patterns.

Technical analysts (or technicians) seek to identify price patterns and trends in financial markets and attempt to exploit those patterns. While technicians use various methods and tools, the study of price charts is primary. Technicians especially search for archetypal patterns, such as the well-known head and shoulders reversal pattern, and also study such indicators as price, volume, and moving averages of the price.

Many technical analysts also follow indicators of investor psychology (market sentiment).

Critics argue that these patterns are simply random effects on which humans impose causation. They state that humans see patterns that aren't there and then ascribe value to them.Technical analysts also extensively use indicators, which are typically mathematical transformations of price or volume.

These indicators are used to help determine whether an asset is trending, and if it is, its price direction. Technicians also look for relationships between price, volume and, in the case of futures, open interest. Examples include the relative strength index, and MACD. Other avenues of study include correlations between changes in options (implied volatility) and put/call ratios with price.

Risk is a concept that denotes the precise probability of specific eventualities. Technically, the notion of risk is independent from the notion of value and, as such, eventualities may have both beneficial and adverse consequences. However in general usage the convention is to focus only on potential negative impact to some characteristic of value that may arise from a future event.

In economics, a financial market is a mechanism that allows people to easily buy and sell (trade) financial securities (such as stocks and bonds), commodities (such as precious metals or agricultural goods), and other fungible items of value at low transaction costs and at prices that reflect the efficient-market hypothesis. Financial markets have evolved significantly over several hundred years and are undergoing constant innovation to improve liquidity.

Technical analysis is widely used among traders and financial professionals, but is considered in academia to be pseudoscience. Academics such as Eugene Fama say the evidence for technical analysis is sparse and is inconsistent with the weak form of the generally-accepted efficient market hypothesis. Economist Burton Malkiel argues, Technical analysis is an anathema to the academic world.

He further argues that under the weak form of the efficient market hypothesis, you cannot predict future stock prices from past stock prices. However, there are also many stock traders who proclaim technical analysis not as a science for predicting the future but instead as a valuable tool to identify favorable trading opportunities and trends.

The assumption is that all of the fundamental information and current market opinions are already reflected in the current price and when viewed in conjunction with past prices often reveals recurring price and volume patterns that provide clues to potential future price movement.