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Technical analysis is the art of reading price charts to predict where a market might go next. Whether you’re trading forex, stocks, or crypto, it’s a skill that helps you make sense of the chaos of price movements. Instead of digging into a company’s earnings or a country’s GDP, technical analysis focuses on what the market’s already telling you through patterns, trends, and indicators.
Here’s a beginner’s guide to the essential tools, techniques, and chart analyses you need to get started.
At its heart, technical analysis assumes three things: prices move in trends, history repeats itself, and everything—news, sentiment, fundamentals—is already baked into the price. Traders use charts to spot these trends and patterns, aiming to buy low and sell high (or vice versa if shorting). It’s less about “why” a price moves and more about “what” it’s doing right now.
You’ll need a charting platform to start—think MetaTrader, TradingView, or your broker’s app. These tools let you plot price data and overlay indicators to find trading opportunities. Let’s dive into the basics.
The go-to chart type for most traders, candlesticks show a price’s open, close, high, and low over a set time (like 1 hour or 1 day). A green (or white) candle means the price closed higher than it opened; red (or black) means it fell. Patterns like “doji” (where open and close are nearly equal) or “hammer” (a small body with a long lower wick) can signal reversals or indecision.
Imagine these as price “floors” and “ceilings.” Support is where a falling price tends to bounce back up—buyers step in. Resistance is where a rising price stalls—sellers take over. Draw horizontal lines on your chart at these levels based on past price action. A break above resistance or below support can signal a big move.
Prices don’t move in straight lines—they trend up, down, or sideways. Connect higher lows in an uptrend or lower highs in a downtrend with a diagonal line. Trendlines help you see the market’s direction and potential breakout points when the price crosses them.
Patterns are the bread and butter of technical analysis—visual clues to what traders might do next:
Start with a daily chart of your asset—say, EUR/USD or Bitcoin. Draw support and resistance lines from past highs and lows. Add a 50-day SMA to see the trend. If the price is above it and rising, look for dips to support as buying opportunities. Check RSI for overbought/oversold conditions, and watch for patterns like triangles to time your entry. Always set a stop-loss below support to cap risk.
