Description
Technical analysis is a method of analyzing stock price movements, patterns, and trends using charts and indicators. It helps traders make buy/sell decisions based on historical price and volume data.
Uses past price movements & trading volume to predict future trends.
Helps short-term traders identify entry & exit points.
Works on the principle that "history repeats itself" in market trends.
| Factor | Technical Analysis | Fundamental Analysis |
|---|---|---|
| Focus | Price trends & charts | Company financials |
| Time Frame | Short-term | Long-term |
| Key Tools | Charts, indicators, patterns | Income statements, P/E ratio |
| Who Uses It? | Traders | Investors |
Support: A price level where a stock tends to stop falling and bounce back.
Resistance: A price level where a stock tends to stop rising and pull back.
Breakout: When the price moves above resistance or below support, indicating a trend continuation.
🔹 Example: If a stock has support at $100 and resistance at $120, it will likely move between these levels unless a breakout occurs.
Markets move in trends:
1️⃣ Uptrend (Bullish) – Higher highs & higher lows (Buy opportunity)
2️⃣ Downtrend (Bearish) – Lower highs & lower lows (Sell or short opportunity)
3️⃣ Sideways/Consolidation – Price moves in a range (Wait for breakout)
🔹 Example: A stock making new highs with increasing volume signals a strong uptrend.
SMA (Simple Moving Average) – Average of closing prices over a set period.
EMA (Exponential Moving Average) – Gives more weight to recent prices.
Golden Cross (Bullish) – Short-term MA crosses above long-term MA.
Death Cross (Bearish) – Short-term MA crosses below long-term MA.
🔹 Example: A 50-day MA crossing above the 200-day MA is a bullish signal.
Measures stock momentum (0-100 scale).
Above 70 = Overbought (Possible downtrend).
Below 30 = Oversold (Possible uptrend).
🔹 Example: If RSI is 85, the stock is overbought and may correct.
Identifies trend changes using two moving averages.
Bullish Signal: MACD line crosses above Signal line.
Bearish Signal: MACD line crosses below Signal line.
🔹 Example: If MACD crosses above signal line, it's a buy signal.
High Volume = Strong Trend Confirmation.
Low Volume = Weak Trend (Possible Reversal).
🔹 Example: A breakout with high volume is more likely to sustain the trend.
Hammer 🛠️ – Small body, long lower wick (Reversal signal).
Engulfing Pattern – Large green candle fully engulfs red candle.
Shooting Star – Small body, long upper wick (Reversal down).
Bearish Engulfing – Large red candle fully engulfs green candle.
🔹 Example: A hammer at support may signal a buy opportunity.
Ascending Triangle – Bullish breakout expected.
Flag & Pennant – Short pause before trend continues.
Head & Shoulders – Bearish reversal signal.
Double Bottom – Bullish reversal signal.
🔹 Example: A double bottom pattern often signals a price rally.
Use demo accounts to practice without risking real money.
Always set a stop-loss to protect against big losses.
Example: Use RSI + Moving Averages + MACD for confirmation.
"Trend is your friend." Trade in the direction of the overall market trend.
✅ Helps identify entry & exit points.
✅ Useful for short-term trading & trend following.
✅ Reduces emotional decisions in investing.
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