Technical Analysis Fundamentals
Technical analysis is not prediction; it is a structured way of describing supply and demand so you can define entries, exits and invalidation levels. Used well it makes your decisions repeatable. Used badly it becomes indicator collecting.
Read candles as a record of conflict
Each candle summarises open, high, low and close for a period. The body shows where control settled; the wicks show where an attempt failed. A long lower wick after a sustained decline says sellers pushed price down and were absorbed — information you cannot get from a line chart.
Always know which timeframe you are trading. A bearish hourly candle inside a strong weekly uptrend is noise for a position trader and a signal for a scalper. Conflicting timeframes are the most common source of unnecessary losses.
Support and resistance are zones, not lines
Price reacts to areas where meaningful volume changed hands. Draw zones from candle bodies and volume clusters rather than single wick extremes, and expect them to be probed. The useful question is not 'did price touch the level' but 'did it accept or reject the level' — acceptance means time spent trading inside it.
- Prior consolidation ranges become future decision zones
- Round numbers and prior all-time highs attract resting orders
- A broken resistance that holds on retest is the highest-quality confirmation
Moving averages: trend context, not signals
The 20, 50 and 200 period moving averages are widely watched, which is exactly why they matter — they concentrate attention. Use their slope for trend direction and their separation for trend strength, rather than trading every crossover. Crossovers are lagging by construction and produce whipsaws in ranges.
RSI and MACD, interpreted correctly
RSI measures the ratio of average gains to losses. In a strong trend it can hold above 70 for weeks, so treating 70 as an automatic sell is a reliable way to fight momentum. The higher-value read is divergence: price making a new high while RSI does not, indicating a thinning of participation.
MACD compares two moving averages and their own average. Its histogram is best used as a momentum thermometer — expanding bars confirm continuation, contracting bars warn that a move is running out of fuel before price itself turns.
Confluence beats complexity
Three tools that disagree are worse than one you understand. Build a small stack — structure, one trend filter, one momentum filter — and require agreement. If two of the three are silent, that is a valid reason not to trade.
Key takeaways
- Pick a primary timeframe and respect it
- Treat support and resistance as zones with acceptance or rejection
- Use moving averages for context, not entry triggers
- Look for divergence rather than fixed overbought levels
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Risk Management Strategies