What is Technical Analysis

Technical Analysis is the study of past price and volume trends to judge the direction of future price movements. Technical analysis assume that prices take a randon walk and one can judge the future price movements based on the past trends. That way, Tech analysis helps investors to take their investment decisions.
Methods of Tech Analysis
There are two main methods for studying investment data: technical analysis, the study of price and volume trends and fundamental analysis, the study of a company or industry's earnings. Technical analysis itself has two main branches - one dependent on intuition and interpretation, the other on quickly crunching colossal amounts of data. Acolytes of the first decipher information about trading through interpreting price charts. Theirs is the rarefied realm of head-and-shoulders patterns, double-bottoms, flags and pennants - patterns that their experienced eyes become increasingly adept at discerning. Computers have limited power to replicate the intuitive nature of their work.
That's not true for the other branch of technical analysis - that which relies on brute calculation to crunch raw price and volume data. What's left after the distillation: secondary indicators (oscillators, moving averages) that are then used to spot buying or selling opportunities. While powerful computers and complex formulas for deriving indicators can lend an unwarranted scientific aura to this whole process, it's worth remembering that no computer or calculation is powerful enough to predict the future with absolute certainty. There is a place for subjectivity within this branch as well as the first.
Types of technical indicators
Generally, there are two kinds of technical indicators: One type (including moving averages) is best suited to track an upward or downward trend, while the other (including oscillators) is most useful in tracking sideways motion.
Among trend-following indicators, perhaps the best known is the moving average, which charts the average price of something over a period of time. With each new calculation, the oldest observation used in figuring the average is dropped and the most recent is substituted. Thus, a five-day moving average would be calculated using prices from the past five days; a 100-day moving average would use the most recent 100 days.
While it's possible to construct a system that uses just one moving average to signal when to buy or sell, many technicians use two or three. Then they watch closely to see when the averages begin to cross one another. They can also build moving-average envelopes around prices by adding and subtracting a fixed percentage of the average to itself by, for instance, putting "bands" of 3 percentage points above and below a 20-day moving average. A daily price that moved out of the bands and hence out of the envelope might be interpreted as meaning that the market was headed for an extreme. The application of Bollinger bands is the same as with envelopes: to try to spot promising trading time windows as the prices move beyond the bands. These bands are also built around a moving average, but the boundaries of the envelope are related to the volatility of the market. When prices are volatile and harder to predict from the previous day's information, Bollinger bands widen. When prices are relatively steady, the bands narrow.
Oscillators are generally used alongside moving averages or other trend-following indicators to improve market timing. These indicators, as the name suggests, generally fluctuate from one extreme value to another around a midpoint line. Alarm bells may go off when an oscillator hits extreme values or when an oscillator chart diverges from a price chart.
Among widely known oscillators
Momentum: A running measure of the difference between the latest price and the price a fixed number of days earlier.
Relative Strength Index: An index that compares the price of a stock on up days over a given period to the price on down days over that same period. In theory, a stock that holds value on the downside will be a strong performer on the upside, and vice versa.
Stochastic: An indicator of the level of the current price in relation to the high and low prices over a fixed period. This indicator is usually graphed as two lines representing the original indicator and its three-day moving average.
Larry Williams %R: Another indicator that defines the latest price in terms of its range over a recent period.
Moving-Average Convergence Divergence (MACD): An indicator based on the difference between a short term and a longer term moving average. The result is also averaged and the two are compared. Signals are generated when the two lines cross. The difference between the two lines is often charted as well, and is known as a histogram.

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