Technical Analysis is a technique for forecasting the direction of stock prices based on past market data. Itas simplest form takes only two variables into account: 1) price, and 2) volume. At this level, Technical Analysis is an overly simplified statistical analysis of market trends, and while many people have claimed positive results, it does not stand up to the scrutiny of academic mathematicians.

Historically, Technical Analysis stood in contrast with fundamental analysis, which prefers to make a more comprehensive profile of a company before predicting future trends. Technical Analysts argued that if specific company data was relevant, it would have already effected the price or volume of their stocks, and is therefore inherently included in the technical analysis anyway.

Eliminating guesswork from the investment process is the goal of technical analysis. Using different data, fundamental analysis creates the same result with a different method. Technical analysis, however, gives a pure, quantitative gauge of future trends to help automate decision making.

Professional Technical Analysts will likely identify atypical patternsa such as the aHead and Shoulders Patterna. When looking at a graph, this pattern depicts three peaks with the center peak the highest, and the other two approximately the same. Patterns such as this, serve as graphic indicators by which an analyst will make trading decisions. Critics argue that these patterns are not mathematically valid, but rather are the result of humanas psychological predisposition to finding patterns in an otherwise random graphical environment.

While Technical Analysis seeks to use a purely quantitative measure for predicting market trends, it is limited by a number of factors: Technical analysts traditional ignore a lot of quantitative data. Analysts tend to adhere to particular paradigms, which favor different charting methods and attribute more or less weight to particular statistical patterns as market indicators, which reveals a subjective bias on the part of the Analyst.

Machine learning and artificial intelligence are the new frontier for both technical analysis and fundamental analysis. These computers can make the decision making process of investing automated, without consideration of how much data can be physically processed by an individual.

Unlike an analyst, a computer can pick up miniscule details that on the surface seem unrelated to the trend being evaluated. Additionally, is not predisposed to identify false patterns. Computers can identify trends of any size, though analysts tend to look for just the larger trends.

While it is plausible that many existing analytical paradigms will become obsolete as our tools improve, it is unknown whether machines will replace technical analysis or merely reveal the shortcomings of our prior techniques and help us to improve them.