Technical analysis (TA) studies price and volume to estimate where price may go next. It does not predict the future — it identifies higher-probability conditions and lets risk management handle the rest.
The premises
TA rests on three ideas: price reflects all known information, price moves in trends, and patterns of behavior repeat because human psychology repeats.
Trend tools: moving averages
A moving average (MA) smooths price into a line. Common uses:
- 50-day and 200-day MAs — gauge the longer trend. Price above a rising 200-day is a classic “uptrend” filter.
- Crossovers — a shorter MA crossing above a longer one is a momentum signal (and crossing below, the reverse).
Use MAs as a trend filter, not a crystal ball. “Only take long setups while price is above the 200-day” removes a lot of low-quality trades.
Momentum: RSI & MACD
- RSI (Relative Strength Index, 0–100) measures how fast price has moved. Readings near 70 are often called overbought, near 30 oversold — but in strong trends they can stay there.
- MACD measures the relationship between two moving averages to show momentum shifts.
Indicators are derived from price — they confirm, they do not lead.
Chart patterns
Patterns are visual shorthand for supply/demand shifts:
| Pattern | Suggests |
|---|---|
| Double top / bottom | Reversal |
| Head & shoulders | Reversal |
| Triangles / flags | Continuation after a pause |
| Breakout from range | New trend leg if volume confirms |
Putting it together
A clean setup usually has confluence: trend agrees, a level lines up, momentum confirms, and volume supports it. The more boxes checked, the better — but never skip the stop.
More indicators is not more edge. Two or three you understand beat a screen full you do not. TA finds the trade; risk management decides if you survive it.