{"id":2573,"date":"2019-08-27T17:37:00","date_gmt":"2019-08-27T17:37:00","guid":{"rendered":"https:\/\/analystprep.com\/cfa-level-1-exam\/?p=2573"},"modified":"2026-03-02T17:45:13","modified_gmt":"2026-03-02T17:45:13","slug":"technical-analysis-explained","status":"publish","type":"post","link":"https:\/\/analystprep.com\/cfa-level-1-exam\/portfolio-management\/technical-analysis-explained\/","title":{"rendered":"Technical Analysis (TA)"},"content":{"rendered":"\n<script type=\"application\/ld+json\">\n{\n  \"@context\": \"https:\/\/schema.org\",\n  \"@type\": \"VideoObject\",\n  \"name\": \"Technical Analysis (2023 Level I CFA\u00ae Exam \u2013 PM \u2013 Module 7)\",\n  \"description\": \"This video lesson covers the principles, tools, and applications of technical analysis in CFA Level 1. It explains key assumptions, chart types, patterns, indicators, and contrasts technical with fundamental analysis. It also explores links to behavioral finance, intermarket analysis, and how technical analysis informs portfolio management decisions.\",\n  \"uploadDate\": \"2021-12-27T00:00:00+00:00\",\n  \"thumbnailUrl\": \"https:\/\/i.ytimg.com\/vi\/aIFkX46UShE\/hqdefault.jpg\",\n  \"contentUrl\": \"https:\/\/www.youtube.com\/watch?v=aIFkX46UShE\",\n  \"embedUrl\": \"https:\/\/www.youtube.com\/embed\/aIFkX46UShE\",\n  \"duration\": \"PT59M32S\"\n}\n<\/script>\n\n\n\n<iframe loading=\"lazy\" width=\"560\" height=\"315\" src=\"https:\/\/www.youtube.com\/embed\/aIFkX46UShE?si=y7kE6pNURMYPpTfg\" title=\"YouTube video player\" frameborder=\"0\" allow=\"accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture; web-share\" referrerpolicy=\"strict-origin-when-cross-origin\" allowfullscreen><\/iframe>\n\n\n\n<p>Technical analysis is the practice of using price and volume data to value stocks. It upholds the idea that supply and demand, that jointly constitute market forces, ultimately determine the stock price. Technical analysis is a concept widely used to value securities in free markets around the globe.<\/p>\n\n\n\n<!--more-->\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Breaking Down Technical Analysis<\/strong><\/h2>\n\n\n\n<p>A free market is one where willing buyers and willing sellers can freely interact without being subjected to government imposed impediments or some other form of constraint. Proponents of technical analysis argue that supply and demand determine stocks prices in <strong>real time<\/strong>.<\/p>\n\n\n\n<p>The following are the main assumptions inherent in technical analysis:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>market forces (supply and demand) determine the market value of assets;<\/li>\n\n\n\n<li>rational factors as well as irrational ones i.e data and guesswork respectively, collectively drive supply and demand;<\/li>\n\n\n\n<li>individual stock prices change to reflect periodic trends exhibited by the market as a whole;<\/li>\n\n\n\n<li>patterns and trends are repetitive. Therefore, we can actually predict future price movements; and<\/li>\n\n\n\n<li>emotions play a major role in determining human behavior, which can be quite erratic.<\/li>\n<\/ul>\n\n\n\n<p>Technical analysis deviates from the <a href=\"https:\/\/analystprep.com\/cfa-level-1-exam\/equity\/market-efficiency-fundamental-analysis\/\"><em>efficient market hypothesis<\/em><\/a> which claims that humans always exercise rationality in decision making, and by extension, buying and selling of financial assets. In fact, technicians heavily link TA to the study of investor psychology and human behavior in different circumstances. Technicians believe that there is convincing evidence, gathered over the years, that shows that the response of investors follows the same pattern when subjected to similar circumstances.<\/p>\n\n\n\n<div style=\"background:#f3f4f6; padding:16px 14px; border-radius:12px; margin:20px 0; text-align:center;\">\n  <a href=\"https:\/\/analystprep.com\/free-trial\/\" target=\"_blank\" rel=\"noopener noreferrer\"\n     style=\"display:inline-flex; align-items:center; justify-content:center; padding:12px 18px; border:2px solid #1d4ed8; border-radius:999px; color:#1d4ed8; text-decoration:none; font-weight:600; font-size:16px; line-height:1; background:#ffffff; white-space:nowrap;\">\n    Strengthen your technical analysis interpretation with a free CFA trial\n  <\/a>\n<\/div>\n\n\n<h2><strong>The Line Between Technical and Fundamental Analysis<\/strong><\/h2>\n<p>While technical analysis values assets based on trading volume and pricing data, fundamental analysis is more conservative. Fundamental analysis values assets based on the information recorded in financial statements. To value a security, fundamental analysis looks into metrics such as the price-to-book value and company earnings before tax.<\/p>\n<h3><strong>Applications of Technical Analysis<\/strong><\/h3>\n<ul>\n<li>Pricing of assets without future cash flows (dividends or other forms of income)<\/li>\n<li>Analysts can use the method to estimate fair values of assets in situations where financial statements are fraudulent, effectively ruling out the reliability of fundamental analysis.<\/li>\n<\/ul>\n<p>The analysis of trading volumes and price fluctuations is done on graphs and displayed in form of charts. For this reason, technical analysis is widely considered easier to understand and conduct compared to fundamental analysis.<\/p>\n<p>However, using past data and trends to predict the future of the market as a whole may not always be valid. We cannot rely on the past as an accurate projection of future results.<\/p>\n<p><em>Reading 56 LOS 56a:<\/em><\/p>\n<p><em>Explain principles <\/em><em>of <\/em><em>technical analysis, its applications and its underlying assumptions.<\/em><\/p>\n<div class=\"notes_inv\">\n<hr \/>\n<p><em><a href=\"https:\/\/analystprep.com\/cfa-level-1-exam\/portfolio-management\/learning-sessions-curriculum-portfolio-management\/\">Portfolio Management \u2013 Learning Sessions<\/a><\/em><\/p>\n<\/div>\n\n\n<div style=\"background:#f3f4f6; padding:22px 18px; border-radius:14px; margin:30px 0; text-align:center;\">\n  <a href=\"https:\/\/analystprep.com\/free-trial\/\" target=\"_blank\" rel=\"noopener noreferrer\"\n     style=\"display:inline-flex; align-items:center; justify-content:center; padding:14px 24px; border-radius:999px; background:#1d4ed8; color:#ffffff; text-decoration:none; font-weight:700; font-size:17px; line-height:1;\">\n    Start Free Trial \u2192\n  <\/a>\n\n  <p style=\"\n    margin:0;\n    font-size:16px;\n    color:#374151;\n  \">\n    Practice CFA Level I technical analysis questions covering chart patterns, indicators, trends, and exam-style scenarios with step-by-step solutions.\n  <\/p>\n<\/div>\n\n\n\n<p><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Technical analysis is the practice of using price and volume data to value stocks. It upholds the idea that supply and demand, that jointly constitute market forces, ultimately determine the stock price. Technical analysis is a concept widely used to&#8230;<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[7],"tags":[],"class_list":["post-2573","post","type-post","status-publish","format-standard","hentry","category-portfolio-management","blog-post","no-post-thumbnail","animate"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v26.9 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Technical Analysis Overview | CFA Level 1 - AnalystPrep<\/title>\n<meta name=\"description\" content=\"Learn how technical analysis uses price and volume data to assess stocks, based on supply and demand dynamics in financial markets.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/analystprep.com\/cfa-level-1-exam\/portfolio-management\/technical-analysis-explained\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Technical Analysis Overview | CFA Level 1 - 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