Technical analysis

Technical analysis looks at what price has done rather than why. Its starting assumption is that price already reflects available information, and that the way buyers and sellers have behaved, as shown on a chart, can help a trader judge trends, momentum and areas where decisions tend to cluster. It is the counterpart to fundamental analysis, which focuses on economics, interest rates and policy.

The main tools

• Chart types: line, bar and candlestick charts, on timeframes from one minute to monthly.
• Levels: support, resistance, round numbers and Fibonacci retracements.
• Trend tools: moving averages, trend lines, highs and lows.
• Oscillators: RSI, MACD and stochastics for momentum.
• Volatility measures: ATR and Bollinger Bands.
• Price action: reading bar shapes and market structure without indicators.

Example

Illustrative scenario: on the daily EUR/USD chart, price is above a rising 50-day moving average and making higher highs and higher lows, so a trader classes it as an uptrend. On the four-hour chart, price pulls back to a former resistance zone, now support, near 1.0800, and RSI drops towards 40 without breaking lower. The trader plans a long entry with a stop below 1.0770. Nothing here predicts the outcome; it structures the decision and the risk.

Limits and misconceptions

• Many patterns are subjective; two analysts can draw different levels on the same chart.
• Indicators are calculated from price, so stacking several often repeats the same information.
• Settings that fit past data often stop working, a trap called overfitting. See how to backtest a strategy.
• Scheduled news can override any chart setup in seconds.

Start with how to read candlestick charts and price action trading.