Technical analysis is composed of two parts: graphical
analysis and numerical analysis. The first is essentially based on
the simple observation of prices and volumes levels, as well as the existence of
characteristic graphical figures. The second one, in comparison, uses
mathematical constructions. On the basis of prices (especially closing and
extreme levels), technical indicators are created.
These latter can belong to two categories, referring to
both facets of the investors’ psychology. These are trend indicators,
usually based on averages, on the one hand and counter-trends indicators,
usually based on derivatives, on the other hand.
The main interest of technical indicators is their
predictive capacity, while graphical analysis often has this possibility only
when figures are at least partially drawn. This is especially true for
counter-trend models.