Technical Analysis Basics

Technical analysis is the study of price movement using charts and indicators. It helps traders identify patterns and make informed trading decisions.

Candlestick Patterns

Candlesticks are the most common way to visualize price action. Each candle shows the open, high, low, and close price for a given time period.

Key Candlestick Patterns

Doji: Open and close are nearly equal — signals indecision and potential reversal

Hammer: Small body with long lower wick — bullish reversal signal after a downtrend

Engulfing: A larger candle fully engulfs the previous candle's body — strong reversal signal

Morning Star: Three-candle reversal pattern (bearish, doji, bullish) at the bottom of a downtrend

Evening Star: Three-candle reversal pattern (bullish, doji, bearish) at the top of an uptrend

Support and Resistance

Support and resistance are price levels where the market has historically reversed.

Support: A price level where buying pressure overcomes selling pressure, causing the price to bounce up

Resistance: A price level where selling pressure overcomes buying pressure, causing the price to bounce down

How to Identify Key Levels

• Look for areas where price has reversed multiple times

• Round numbers (1.1000, 1.2000) often act as psychological levels

• Previous highs and lows

• Trendlines connecting higher lows (uptrend) or lower highs (downtrend)

Popular Technical Indicators

RSI (Relative Strength Index)

RSI measures the speed and change of price movements on a scale of 0-100.

Above 70: Overbought — potential sell signal

Below 30: Oversold — potential buy signal

Divergence: When price makes a new high but RSI makes a lower high — bearish signal

MACD (Moving Average Convergence Divergence)

MACD shows the relationship between two moving averages of price.

Line crossovers: Signal line crossing above = buy, crossing below = sell

Zero line: Histogram above zero = bullish momentum, below = bearish

Divergence: Price and MACD moving in opposite directions = potential reversal

Moving Averages

SMA (Simple Moving Average): Average price over a period — smoother, lags more

EMA (Exponential Moving Average): Weighted toward recent price — reacts faster

Golden Cross: 50 SMA crosses above 200 SMA — bullish signal

Death Cross: 50 SMA crosses below 200 SMA — bearish signal

Putting It All Together

The best approach combines multiple tools. For example: wait for a bullishengulfing pattern at a known support level when RSI is below 30 for a high-probability buy setup.