Technical analysis is the study of price movements, trading volume, and market behavior to forecast future price direction and identify trading opportunities. This approach assumes that all relevant information is reflected in price action and that prices move in trends that can be identified and followed. Technical analysts use charts, indicators, and patterns to make trading decisions.

Technical analysis encompasses various tools including trend lines, support and resistance levels, moving averages, oscillators, and chart patterns. The methodology contrasts with fundamental analysis by focusing on price action rather than underlying economic factors. Understanding technical analysis helps traders identify entry and exit points, manage risk, and develop systematic trading approaches.

Real-world example: A trader uses technical analysis on EUR/USD charts, identifying a head and shoulders pattern combined with RSI divergence to predict a trend reversal from 1.1200 to 1.1000, entering short positions based on chart signals.