Technical Analysis 101: Charts, Patterns, and Indicators

What is Technical Analysis?

Technical analysis is the study of price movements and trading volume to forecast future price changes. Unlike fundamental analysis, which focuses on a company's financials, technical analysis is purely based on market data.

Reading Charts

Candlestick Charts

The most popular chart type shows:

Open - Where the price started

Close - Where the price ended

High - The highest price

Low - The lowest price

Green/white candles = price went up Red/black candles = price went down

Timeframes

1 minute - Day trading

15 minutes - Swing trading

Daily - Position trading

Weekly - Long-term investing

Key Patterns

Support and Resistance

Support - Price level where buying pressure prevents further decline

Resistance - Price level where selling pressure prevents further rise

Trend Lines

Connect consecutive highs or lows to identify the trend direction.

Common Patterns

Head and Shoulders - Reversal pattern

Double Top/Bottom - Reversal pattern

Triangles - Continuation pattern

Flags - Continuation pattern

Popular Indicators

Moving Averages

SMA (Simple) - Average of prices over a period

EMA (Exponential) - Weighted toward recent prices

Common periods: 20, 50, 200 days

RSI (Relative Strength Index)

Measures momentum on a 0-100 scale

Above 70 = Overbought

Below 30 = Oversold

MACD

Shows relationship between two moving averages

Signal line crossovers indicate buy/sell opportunities

Bollinger Bands

Middle band = 20-day SMA

Upper/lower bands = 2 standard deviations

Price touching bands can indicate reversals

Putting It Together

Identify the trend (up, down, sideways)

Find support and resistance levels

Confirm with indicators

Look for patterns

Manage risk with stop-losses

Limitations

Technical analysis works best when:

Markets are liquid

Combined with other analysis methods

Risk management is in place

It's not perfect, but it's a valuable tool in any investor's toolkit.