Overview
Technical analysis is the study of past price and volume data to identify patterns and probabilities in future price movement. It rests on three assumptions: the market discounts everything, prices move in trends, and history tends to repeat itself.
What Technical Analysts Look At
- Price charts (line, bar, candlestick)
- Support and resistance levels
- Trend structure (higher highs, lower lows)
- Volume
- Indicators (RSI, MACD, moving averages, Bollinger Bands, etc.)
- Chart patterns (triangles, flags, head-and-shoulders)
Timeframes
Technical analysis can be applied to any timeframe, from 1-minute charts for scalping to weekly and monthly charts for position trading. Multiple-timeframe analysis combines them to align trend and timing.
Advantages
- Universal — works across all liquid instruments
- Visual and rules-based
- Provides precise entry, stop and target levels
- Complements fundamental analysis
Limitations
- No indicator is a guaranteed signal
- Patterns can fail, especially in low-liquidity or news-driven environments
- Requires discipline to avoid over-fitting
Key Takeaways
- Technical analysis studies price, not causes.
- It is a tool for building probabilities, not certainties.
- Combine multiple confirming factors before entering a trade.