Technical Analysis

Glossary

Technical analysis is a trading strategy that uses charts, patterns, and indicators to predict future price movements in stocks, options, crypto, and other assets. Instead of focusing on a company's fundamentals, technical traders analyze historical price action and trading volume to find profitable trade setups.

Key Concepts of Technical Analysis:

Support & Resistance → Price levels where an asset tends to stop falling (support) or stop rising (resistance).
Trendlines → Lines drawn on a chart to identify upward, downward, or sideways trends.
Candlestick Patterns → Price formations (e.g., doji, engulfing, hammer) that hint at potential reversals or breakouts.
Indicators & Oscillators → Tools like the Relative Strength Index (RSI), Moving Averages, MACD, Bollinger Bands to measure momentum, volatility, and trend strength.

Why Traders Use Technical Analysis:

Identifies Entry & Exit Points → Helps traders buy low, sell high or short at peaks.
Works for All Markets → Stocks, forex, crypto, commodities—technical analysis is universal.
Great for Short-Term Trading → Day traders and swing traders rely on technical analysis more than long-term investors.

Limitations of Technical Analysis:

Not Always Accurate → Past price action doesn’t guarantee future moves.
Market Manipulation → Sudden news, earnings, or big players can disrupt chart patterns.
Better with Fundamentals → Many traders combine technical and fundamental analysis for stronger trade decisions.

Technical analysis is not a crystal ball, but those who trade using Technical Analysis in their strategies say it can increase the probability of making profitable trades. See also: Fundamental Analysis