Technical analysis is the study of price itself. Where fundamental analysis asks why an asset should move, technical analysis asks how it is moving right now — and what the behaviour of buyers and sellers, etched into the chart, suggests about what they will do next.
The underlying premise is straightforward: markets absorb all available information into price, traders act on recurring patterns of hope and fear, and history rhymes often enough to be useful. Technical analysis is not a crystal ball — it is a probabilistic framework for reading supply and demand in real time.
Chart Types: Line, Bar, and Candlestick
A line chart shows only closing prices, connected together. It is clean but sparse — good for a high-level overview, poor for reading intraday action. A bar chart adds the open, high, and low of each period. A candlestick chart, now the industry standard, shows the same data as a bar chart but colours the body green or red to show whether the close was higher or lower than the open.
At a glance, a candlestick chart shows sentiment as well as price. Long green bodies with small wicks mean strong buying. Long upper wicks mean rejection of higher prices. This shorthand is why traders across every asset class and timeframe use them.
Support and Resistance
Support is a price level where buyers have historically entered the market in enough size to stop declines. Resistance is the mirror image — a level where sellers have historically stopped rallies. These levels are created by human memory: traders remember where they were burned or where they made money, and they act again at those same prices.
The more times a level has been tested without breaking, the more significant it becomes — but also the more catastrophic its break. Breaks of well-defined support or resistance often convert the old level into its opposite: former support becomes new resistance, and vice versa.
Trend Identification
Trends define the path of least resistance. A price that makes a sequence of higher highs and higher lows is in an uptrend. A sequence of lower highs and lower lows is a downtrend. Ranges occur when neither pattern holds, with price oscillating between horizontal support and resistance.
“The trend is your friend — until the end, when it bends.”
— Market saying
Trading with the trend raises your probability of success because you are aligned with the dominant flow. Counter-trend trading can offer better entries, but it demands tighter stops and faster exits.
Key Indicators
Moving Averages
A moving average smooths price action by averaging the closing price of the last N periods. The 20, 50, and 200-period moving averages are market standards. When price trades above a rising 200-period moving average, the long-term trend is up. Crossovers of shorter and longer moving averages — such as the 50 crossing above the 200 (the “golden cross”) — are classic trend-change signals.
Relative Strength Index (RSI)
RSI measures the magnitude of recent gains against recent losses on a 0–100 scale. Values above 70 are traditionally considered overbought, below 30 oversold. RSI works best as a momentum confirmation tool, not as a standalone signal — strongly trending markets can stay overbought or oversold for extended periods.
MACD
Moving Average Convergence Divergence (MACD) plots the difference between two moving averages alongside a signal line. When MACD crosses above the signal line, momentum is shifting upward; when it crosses below, momentum is weakening. Divergence between MACD and price often precedes reversals.
Every indicator derives from price — it cannot tell you something price has not already said. Use indicators to confirm your read of the chart, not to replace it.
Selecting a Timeframe
A chart looks different on every timeframe. A strong uptrend on a 4-hour chart may be a minor pullback on a daily chart. Align your analysis with your holding period: scalpers watch 1–5 minute charts, day traders watch 15 minutes to 1 hour, swing traders live on the 4-hour and daily. A useful practice is multi-timeframe analysis — checking trend on the higher timeframe before looking for entries on the lower.
Key Takeaways
- Candlesticks are the standard chart format because they encode sentiment at a glance.
- Support and resistance levels gain significance with each retest — and convert when broken.
- Trade with the higher-timeframe trend to stack probability in your favour.
- Treat indicators as confirmation tools, not entry triggers.
- Always confirm setups on a higher timeframe before executing on a lower one.
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