Technical Analysis Guide

Introduction

Technical analysis is the study of price action - the mechanics of how markets move and repeat. Used right, it’s how you find high-probability entries with clean risk. Used wrong, it’s 40 indicators competing for your attention while you miss the move.

This guide is the tight version: the 10% of TA that covers 80% of real trading decisions. Levels, trendlines, moving averages, volume, and multi-timeframe. Skip the rest until the basics are automatic.

Candles & What They Mean

A single candle shows four values: open, high, low, close. The body is between open and close; the wicks extend to high and low. Green (or white) = close above open. Red (or black) = close below open.

Reading a candle

Long body, small wicks

Trend commitment. Buyers (or sellers) controlled the whole range.

Small body, long wicks

Indecision. Both sides tried and neither won.

Long lower wick, small body

Rejection. Sellers pushed price down, buyers took it back. Bullish at support.

Long upper wick, small body

Rejection. Buyers pushed up, sellers took it back. Bearish at resistance.

Doji (open ≈ close)

Balance. The market hasn’t decided. At an extreme, often a turn signal.

Support & Resistance

The single most important concept in technical analysis. A level is a price where the market has repeatedly paused, reversed, or accelerated.

How to draw them

1. 1
   Zoom to daily, find swing highs and swing lows

   Points where price made a clear reversal. Mark them with horizontal lines.
2. 2
   Check for multiple tests

   A level becomes more significant each time price tests it and respects it. 2 tests = weak, 3+ = strong.
3. 3
   Mark round numbers

   4,500 on ES, 1.1000 on EUR/USD, $100 on a stock. Round numbers act as psychological levels even without prior-price confirmation.
4. 4
   Work down the timeframes

   Weekly levels > daily > 4H > 1H. Higher-timeframe levels are stronger.

Trendlines & Channels

Trendlines connect swing points on a diagonal - showing the pace of a trend. Channels are two parallel trendlines containing price.

• Uptrend: trendline connecting higher lows. Buyers stepping in at rising prices.
• Downtrend: trendline connecting lower highs. Sellers stepping in at falling prices.
• Channel: parallel line projected off the opposite swing. Contains the expected range.
• Break of trendline: often signals trend pause or reversal. Wait for a retest of the broken line to confirm direction.

Moving Averages

Moving averages smooth price over N periods. Used as trend filters and dynamic support/resistance.

SMA (Simple MA)

Equal-weighted average of the last N closes. Slower to react.

EMA (Exponential MA)

More weight on recent closes. Reacts faster to new price.

20 EMA

Short-term trend. Intraday and swing traders use it as a pullback zone.

50 SMA/EMA

Medium-term trend. The defining line for swing traders.

200 SMA

Long-term trend. Above = bull regime, below = bear regime. Institutions watch it.

How to use them

• Pullback entries: wait for price to touch the 20 EMA in an uptrend, buy off the touch.
• Trend filter: only long stocks above their 200 SMA. Cuts the worst setups immediately.
• MA stacking: 20 > 50 > 200 = strong uptrend. Reversed = strong downtrend.
• Crossovers: 50 crosses above 200 = “golden cross” (long-term bullish). Inverse = “death cross.” Slow signals; use as context, not entry.

Volume as Confirmation

Volume tells you how many traders participated in a move. A breakout on heavy volume is real; on thin volume it’s usually a trap.

Volume rules

• Breakouts: want above-average volume on the breakout candle.
• Trend pullbacks: want declining volume on the pullback, rising volume on the resumption.
• Reversals: want a volume spike at the turn - capitulation or surrender.
• Low volume + big move = suspect. Often gets faded.
• High volume + small range = absorption. Someone is taking all the supply quietly; watch for a break.

Continuation Patterns

Patterns that suggest the current trend will continue after a pause.

Bull flag

Strong up move (the pole) followed by a small parallel consolidation (the flag). Break above flag continues the trend.

Bear flag

Mirror - strong down move then consolidation higher. Break below continues the downtrend.

Ascending triangle

Flat top + rising bottoms. Bullish - buyers absorbing supply at a level until it gives.

Descending triangle

Flat bottom + falling tops. Bearish - same mechanic inverted.

Cup and handle

Rounded recovery to prior high (cup), small pullback (handle), then breakout. Bullish, works best on daily/weekly.

Symmetrical triangle

Converging trendlines - compression without directional bias. Trade the break, not a guess.

Reversal Patterns

Double top

Two failed highs at the same level. Break of the neckline (prior low between peaks) confirms the reversal.

Double bottom

Mirror - two failed lows. Break of neckline up confirms.

Head and shoulders

Higher high in the middle (head) flanked by two lower highs (shoulders). Break of neckline = bearish reversal.

Inverse head and shoulders

Mirror. Bullish reversal.

Rounding top / bottom

Slow arc reversal. Often on weekly charts. Slow but durable when they play out.

Candle Patterns Worth Knowing

Single and two-candle patterns that flag reversals or continuations. Useful as confirmation - never as sole signals.

Hammer

Small body, long lower wick, at the bottom of a downtrend. Buyers rejected lower prices. Bullish at support.

Shooting star

Mirror - small body, long upper wick, at the top of an uptrend. Bearish at resistance.

Engulfing (bullish)

Red candle followed by a green one whose body engulfs the previous. Stronger with volume.

Engulfing (bearish)

Mirror. Strong reversal signal at resistance.

Inside bar

A candle whose high and low are inside the prior candle. Compression. Break of either side signals direction.

Pin bar

Long-wick candle rejecting a level. Strong at key support/resistance; weak in the middle of a range.

VWAP & Session Anchors

VWAP (Volume-Weighted Average Price) is the intraday fair-value price. It’s what institutions pay attention to when scaling into or out of large positions.

How to use it

• Above VWAP: intraday bullish bias. Short the first tag of VWAP from above, long the reclaim.
• Below VWAP: inverse.
• VWAP trend days: price opens above VWAP and never closes under. Trail stops under VWAP.
• Chop days: price whips across VWAP repeatedly. Fade extremes, not breakouts.
• Anchored VWAP: pin VWAP to a specific event (earnings, IPO, significant high). Becomes a higher-timeframe fair-value anchor.

ATR & Volatility-Based Stops

ATR (Average True Range) measures volatility - the average range of the last N candles. Use it to size stops rationally instead of guessing.

Rules of thumb

• Stop distance: 1.0–1.5× ATR on the executing timeframe. Below 1× = getting wicked out; above 2× = stop way too wide.
• Target distance: at least 2× the stop distance (2R minimum).
• Sizing: bigger ATR = smaller position (same dollar risk). Volatility and size are inversely related.
• ATR spikes: flag environmental change. Don’t trade the same setups the same way when ATR doubles overnight.

Multi-Timeframe Discipline

The single biggest amateur mistake is trading a lower timeframe without respecting the higher one.

The hierarchy

1. 1
   Higher timeframe = bias

   Daily for swing trades, 4H for intraday. This is where you decide direction.
2. 2
   Middle timeframe = structure

   1H–2H. Pick levels, patterns, and setups here.
3. 3
   Lower timeframe = execution

   15m, 5m, 1m. Time entries and exits here. Do NOT flip bias based on this timeframe.

RSI, MACD, and Oscillators

Momentum oscillators. Useful as secondary confirmation; dangerous as primary signals.

RSI (Relative Strength Index)

0–100 scale of relative gains vs losses. Classic overbought/oversold levels at 70/30. Divergences (price makes new high, RSI doesn’t) can signal momentum loss.

MACD (Moving Average Convergence Divergence)

Difference between two EMAs, plotted with a signal line. Line crossovers and zero-line crosses are standard signals.

Stochastics

Where price closes relative to recent range. Faster than RSI, noisier.

What Doesn't Work

• Drawing 10 indicators on the chart. Every indicator is a lagging derivative of price. Pick 2.
• Hindsight pattern matching. “It looks like 2008” has been said every year since 2008.
• Fibonacci levels as mechanical signals. Useful as reference; not as rules. 61.8 isn’t magic.
• Ichimoku / Elliott / Gann as gospel. Can work for some; most traders add complexity without adding edge.
• Trading every setup you see on YouTube. Your edge is 2–3 setups mastered, not 20 half-understood.

Glossary

Next Steps

• Pick 2–3 setups built on the tools here. No more.
• Backtest them on historical candles via Backtesting.
• Build a playbook for each in Playbooks - entry rule, stop rule, target rule.
• Log every trade with the setup tag in Journal. Over 50 trades per setup, you’ll know which actually works.