Technical analysis aims to identify favorable trading opportunities by studying security
price patterns. The rationale behind it has two components. First, the stock price reflects all
relevant public information at any given time as well as all market participants’ opinions
regarding that information. Second, the stock’s fundamental information and market opinions,
already reflected by the price, will lead to recurring price patterns that imply potential future
price movements [1]. In a more theoretical way, Kaplan’s CFA Level I guide summarizes the
assumptions underlying all technical analysis as follows.