Technical Analysis Fundamentals

Technical analysis (TA) is the study of historical price and volume data to forecast future price movements. Unlike fundamental analysis, which looks at intrinsic value, TA assumes that all relevant information is already reflected in the price.

The core principles of TA:
• Price moves in trends
• History tends to repeat itself
• The market discounts everything
• Volume confirms price movements

Candlesticks are the most popular way to visualize price action:

**Anatomy of a Candle:**
• Body: The thick part showing open-to-close range
• Wicks/Shadows: Lines showing high and low
• Green/White: Close higher than open (bullish)
• Red/Black: Close lower than open (bearish)

**Key Patterns:**
• Doji: Open ≈ Close, indicates indecision
• Hammer: Long lower wick, small body at top (bullish reversal)
• Shooting Star: Long upper wick, small body at bottom (bearish reversal)
• Engulfing: One candle completely engulfs the previous (reversal signal)

Support and resistance are price levels where buying or selling pressure is expected:

**Support**: A price level where demand is strong enough to prevent further decline. Think of it as a "floor."

**Resistance**: A price level where selling pressure is strong enough to prevent further rise. Think of it as a "ceiling."

**Key Concepts:**
• Once broken, support becomes resistance (and vice versa)
• The more times a level is tested, the weaker it becomes
• Round numbers often act as psychological support/resistance
• Volume spikes at S/R levels add validity

Start with these foundational indicators:

**Moving Averages (MA)**
• Simple Moving Average (SMA): Average of last N prices
• Exponential Moving Average (EMA): Weighted toward recent prices
• Common periods: 20, 50, 100, 200
• Golden Cross (bullish): Short MA crosses above long MA
• Death Cross (bearish): Short MA crosses below long MA

**Relative Strength Index (RSI)**
• Measures momentum on a 0-100 scale
• Over 70 = Overbought (potential sell)
• Under 30 = Oversold (potential buy)
• Divergences are powerful reversal signals

**Volume**
• Confirms price movements
• Rising price + rising volume = healthy trend
• Rising price + falling volume = weakening trend

Technical analysis works best when you combine multiple tools:

1. Identify the trend using moving averages
2. Find key support/resistance levels
3. Wait for price to approach these levels
4. Look for candlestick confirmation patterns
5. Check volume for confirmation
6. Use RSI/momentum for entry timing
7. Set stop-loss below support (for longs) or above resistance (for shorts)

Remember: No indicator is perfect. TA is about probabilities, not certainties. Always manage your risk.