Technical Analysis and Market Value Determination

The Interaction of Supply and Demand

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Question

One of the assumptions of technical analysis is that the market value of any good or service is determined solely by the interaction of ________.

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A. B. C. D.

C

Both technicians and non-technicians agree that, at any point in time, the price of a security (or good or service) is determined by the interaction of supply and demand for it. The four assumptions that support technical analysis are these:

1. The market value of any good or service is determined solely by the interaction of supply and demand for it.

2. Supply and demand are governed by numerous factors, both rational and irrational, including the economic variables relied upon by the fundamental analyst, as well as opinions, models and guesses. The market weights all of these factors continually and automatically.

3. Disregarding minor fluctuations, the prices for individual securities and the overall value of the market tend to move in trends, which persist for appreciable lengths of time.

4. Prevailing trends change in reaction to shifts in supply and demand relationships. These shifts, no matter why they occur, can be detected sooner or later in the action of the market itself.