Master the art of reading charts and predicting price movements
Technical analysis is a trading discipline that evaluates investments and identifies trading opportunities by analyzing statistical trends gathered from trading activity, such as price movement and volume. Unlike fundamental analysis, which attempts to evaluate an asset's intrinsic value, technical analysis focuses on patterns of price movements, trading signals, and various analytical charting tools.
The core assumption of technical analysis is that all known fundamentals are already reflected in the price, and that price movements follow trends that tend to repeat over time. By studying charts and patterns, traders attempt to identify opportunities based on past performance.
All information—fundamental, political, psychological—is already reflected in the asset's price. The market price represents the sum of all knowledge and expectations.
Prices tend to move in trends (upward, downward, or sideways) and are more likely to continue in the current direction than to reverse. Identifying these trends is key to successful trading.
Market psychology is predictable, and chart patterns that worked in the past are likely to work again. Traders react similarly to similar market conditions.
Calculates the average price over a specific period. Simple Moving Average (SMA) gives equal weight to all prices, while Exponential Moving Average (EMA) gives more weight to recent prices.
Common periods: 50-day, 100-day, 200-day MAs
Signal: Price above MA = bullish, below = bearish
Oscillates between 0-100, measuring the speed and magnitude of price changes. Helps identify potential reversal points.
Overbought: RSI above 70 (potential sell signal)
Oversold: RSI below 30 (potential buy signal)
Shows the relationship between two moving averages. Consists of MACD line, signal line, and histogram.
Bullish signal: MACD crosses above signal line
Bearish signal: MACD crosses below signal line
Three lines: middle band (SMA), upper band (SMA + 2 standard deviations), lower band (SMA - 2 standard deviations). Bands widen during high volatility, narrow during low volatility.
Signal: Price touching upper band = overbought, lower band = oversold