Technical Analysis
The Discipline for Decoding Market Behavior Through Data and Charts.
What is Technical Analysis (TA)?
It is a **map and compass** for traders. It focuses on studying **price action** and volume on charts to identify trends and predict probable future movements. Its goal is to decode the collective psychology (fear and greed) that drives the markets.
The Philosophy: The 3 Pillars of TA
1. Price Discounts Everything
All available information (news, economy, politics) is already reflected in the current price of the asset. Analysis focuses on the “what” (the price) and not the “why” (the news).
2. Prices Move in Trends
Market movements are not random; they follow identifiable directions (upward, downward, or sideways). The objective is to identify the trend and trade in its favor.
3. History Repeats Itself
Price patterns tend to recur because human psychology (fear and greed) is constant. Past patterns can help forecast probable future outcomes.
Key Analyst Tools
Decoding Japanese Candlesticks
Each candle is a visual representation of the battle between buyers and sellers over a specific period, showing four key data points: open, close, high, and low.
Bullish Candle
Close > Open
Bearish Candle
Close < Open
- Body: The wide part. Shows the difference between the open and close price. Green (or white) if the price went up; Red (or black) if it went down.
- Wicks (Shadows): The thin lines. Indicate the highest and lowest prices reached during the period.
Indicators: The Trader’s GPS
Indicators are mathematical calculations applied to price and volume to clarify price action, confirm trends, and generate signals.
This chart shows how a **Moving Average (blue line)** smoothes out price action (gray line) to more clearly identify the general trend. When the price is above the average, the trend is bullish, and vice versa.
Market Psychology in Action
Support and Resistance
These are psychological price levels where supply and demand tend to concentrate, acting as temporary floors and ceilings for the price.
The price tends to bounce off the **Support** level (buyers’ floor) and retreat from the **Resistance** level (sellers’ ceiling). A breakout of these levels can signal a significant shift in market sentiment.
Common Chart Patterns
Recurring formations on charts that can predict the continuation or reversal of a trend, reflecting collective psychology.
The **Head-and-Shoulders** pattern (left) is a classic bearish reversal signal, while a **Symmetrical Triangle** (right) suggests consolidation before the trend continues.
Building a Disciplined Strategy
5 Steps for a Trading Plan
Define Your Style
Scalper (minutes), Day Trader (hours), or Swing Trader (days/weeks)? This determines your time frames.
Identify the Main Trend
Use long-term moving averages on higher time frame charts to see if the market is bullish, bearish, or sideways.
Mark Key Levels
Draw the most important supports and resistances on your chart. These are probable reaction zones.
Look for Entry Signals
Wait for the price to approach a key level and look for confirmation with candle patterns or indicators.
Plan Your Exit (Risk Management)
Define your **Stop-Loss** (to limit losses) and your **Take-Profit** (to secure gains) BEFORE entering the trade.
The Perfect Synergy: TA + FA
Fundamental Analysis (FA)
The “WHY”
Technical Analysis (TA)
The “WHEN”
Complete View
FA gives you the macroeconomic context and intrinsic value of an asset, while TA gives you the precision to identify optimal entry and exit points based on price action.