Chart Patterns
Much of the body of technical analysis and the study of market action have to do with the study of human psychology. Chart patterns, identified over the past century, reflect bearish or bullish market patterns and are based on traders’ psychological reactions to certain supply/demand fluctuations. Assuming that the innate nature of human psychology does not change, patterns that have worked in the past are assumed to be viable forecasting tools for the future.
Concept of Trend
Another principle of technical analysis is the concept of trend. Market prices will continue in a trend until the trend reverses. The purpose of charting the price actions of a market is to identify trends in the early stages of their development with the intent of trading in the direction of those trends and continuing to ride these trends until they show signs of reversal.