Technical Analysis Basics — Support, Resistance, Trends & Indicators
What is Technical Analysis?
Technical analysis (TA) is the study of past price and volume data to forecast future price movements. Unlike fundamental analysis (which looks at company financials), TA only looks at charts.
Core belief: All available information is already reflected in the price. Chart patterns and indicators reveal the psychology of buyers and sellers.
Trend — The Foundation
"The trend is your friend" is the oldest rule in trading.
- Uptrend: Series of higher highs and higher lows → buy dips
- Downtrend: Series of lower highs and lower lows → sell rallies
- Sideways: Price oscillates in a range → trade the range
Always identify the trend on a higher timeframe before making decisions on a lower timeframe.
Support and Resistance
Support: A price level where buying interest is strong enough to prevent further decline. The price has bounced from this level multiple times in the past.
Resistance: A price level where selling pressure prevents further advance. The price has struggled to break above this level before.
Key insight: When support is broken, it often becomes resistance (and vice versa).
Moving Averages
Moving averages smooth out price action to show the underlying trend.
SMA (Simple Moving Average): Average of the last N closing prices.
- SMA 50: Medium-term trend
- SMA 200: Long-term trend
EMA (Exponential Moving Average): Gives more weight to recent prices — reacts faster than SMA.
Golden Cross: 50 SMA crosses above 200 SMA → bullish signal
Death Cross: 50 SMA crosses below 200 SMA → bearish signal
RSI — Relative Strength Index
RSI measures the speed and magnitude of price changes, oscillating between 0 and 100.
- RSI > 70: Overbought — price may pull back
- RSI < 30: Oversold — price may bounce
- RSI 40–60: Neutral zone
Important: In strong uptrends, RSI can stay above 70 for extended periods. Overbought doesn't automatically mean sell.
MACD — Moving Average Convergence Divergence
MACD = 12-day EMA − 26-day EMA, with a 9-day signal line.
- MACD crosses above signal line: Bullish
- MACD crosses below signal line: Bearish
- MACD histogram shows the gap between MACD and signal — bigger bars = stronger momentum
Volume Analysis
Volume confirms price moves:
- Price up + Volume up: Strong move — likely to continue
- Price up + Volume down: Weak move — possible reversal
- Price down + Volume up: Strong selling — bearish
- Price down + Volume low: Lack of sellers — possible bottom
Volume spikes (2-3× average) near support/resistance are significant signals.
Chart Patterns
| Pattern | Type | Signal |
|---|---|---|
| Head & Shoulders | Reversal | Bearish |
| Inverse H&S | Reversal | Bullish |
| Double Top | Reversal | Bearish |
| Double Bottom | Reversal | Bullish |
| Bull Flag | Continuation | Bullish |
| Bear Flag | Continuation | Bearish |
| Triangle | Continuation | Either direction |
Putting It All Together
A high-probability setup combines multiple confirmations:
- 1Trend: Stock is in an uptrend (higher highs, higher lows)
- 2Support: Price pulls back to a support level
- 3RSI: Oversold (< 40) or shows bullish divergence
- 4Volume: Pullback on low volume (not panic selling)
- 5Candle: Bullish reversal candle at support (hammer, engulfing)
The more confirmations, the higher the probability. But no setup is 100% — always use a stop loss.
Practice Before You Trade
Use [NixPulse's paper trading](/paper-trade) to test your technical analysis setups risk-free. Track which patterns work best for you before putting real money at stake.