Complete Technical Analysis Guide

Master the art of reading charts, understanding price patterns, and using technical indicators to make profitable trading decisions.

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What is Technical Analysis?

Technical analysis is the study of price movements and trading volume to predict future stock price direction. Unlike fundamental analysis, which focuses on company financials, technical analysis assumes that all information is already reflected in the stock price.

🎯 Core Principles of Technical Analysis

  • Price Discounts Everything: All known information is reflected in the current price
  • Prices Move in Trends: Stocks tend to move in identifiable trends that persist
  • History Repeats: Chart patterns and behaviors tend to repeat over time

Essential Chart Types

📊 Candlestick Charts

Most popular chart type showing open, high, low, and close prices. Each candlestick represents a specific time period (1 minute, 1 hour, 1 day, etc.).

  • Green/White Candles: Close higher than open (bullish)
  • Red/Black Candles: Close lower than open (bearish)
  • Wicks/Shadows: Show the high and low prices during the period

📈 Line Charts

Simple chart connecting closing prices over time. Best for identifying long-term trends and support/resistance levels.

📊 Bar Charts

Shows open, high, low, and close prices as vertical bars. Less visual than candlesticks but provides the same information.

Key Technical Indicators

📈 Trend Indicators

Moving Averages

  • Simple Moving Average (SMA): Average price over N periods
  • Exponential Moving Average (EMA): Gives more weight to recent prices
  • Common periods: 20, 50, 100, 200 days

MACD (Moving Average Convergence Divergence)

Shows relationship between two moving averages. Generates buy/sell signals when MACD line crosses signal line.

Bollinger Bands

Moving average with upper and lower bands based on standard deviation. Helps identify overbought/oversold conditions.

⚡ Momentum Indicators

RSI (Relative Strength Index)

Measures speed and magnitude of price changes. Values above 70 suggest overbought, below 30 suggest oversold.

Stochastic Oscillator

Compares closing price to price range over specific period. Helps identify turning points.

Williams %R

Momentum indicator that measures overbought/oversold levels. Similar to stochastic but inverted scale.

📊 Volume Indicators

Volume

Number of shares traded. High volume confirms price movements, low volume suggests weak trends.

On-Balance Volume (OBV)

Cumulative volume indicator that adds volume on up days and subtracts on down days.

Chart Patterns

🔄 Reversal Patterns

  • Head and Shoulders: Three peaks with middle peak highest (bearish reversal)
  • Inverse Head and Shoulders: Three troughs with middle lowest (bullish reversal)
  • Double Top: Two peaks at similar levels (bearish reversal)
  • Double Bottom: Two troughs at similar levels (bullish reversal)
  • Triple Top/Bottom: Three peaks or troughs at similar levels

➡️ Continuation Patterns

  • Triangles: Ascending, descending, and symmetrical triangles
  • Flags and Pennants: Brief consolidation after strong moves
  • Rectangles: Horizontal support and resistance levels
  • Wedges: Rising or falling wedges indicating trend continuation

Support and Resistance

🛡️ Support Levels

Price levels where buying interest is strong enough to prevent further decline. Stock tends to "bounce" off support levels.

  • Previous lows and swing points
  • Moving averages (especially 50 and 200-day)
  • Psychological round numbers ($50, $100)
  • Fibonacci retracement levels

⚔️ Resistance Levels

Price levels where selling pressure prevents further advance. Stock tends to "bounce down" from resistance levels.

  • Previous highs and swing points
  • Moving averages during downtrends
  • Trendline resistance
  • Gap levels and breakaway points

Technical Analysis Strategy

1

Identify the Trend

Use moving averages and trendlines to determine if the stock is in an uptrend, downtrend, or sideways trend.

2

Find Support and Resistance

Identify key levels where price has previously reversed to plan entry and exit points.

3

Use Multiple Indicators

Combine trend, momentum, and volume indicators for confirmation before making trading decisions.

4

Manage Risk

Set stop-loss orders below support (for longs) or above resistance (for shorts) to limit losses.

5

Plan Your Exit

Set profit targets based on resistance levels, measured moves, or risk-reward ratios.

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