What is Technical Analysis?
Technical analysis is the study of price charts to predict future price movements. Unlike fundamental analysis (which looks at economic data), technical analysis focuses purely on what the market has already done — the assumption being that all available information is already reflected in the price.
The core principle is simple: markets move in trends, history tends to repeat, and price patterns emerge because human behaviour is predictable. Technical analysis doesn’t tell you why a price moved — it tells you where it’s likely to go next.
Candlestick Charts: The Trader’s Language
A candlestick shows four prices for a given period: open, high, low, and close. The body (thick part) shows the range between open and close. Wicks (thin lines) show the high and low extremes. A green/white candle means price closed higher than it opened (bullish). A red/black candle means it closed lower (bearish).
Key single-candle patterns include the Doji (open and close nearly equal — indecision), Hammer (small body at the top with a long lower wick — potential reversal up), and Shooting Star (small body at the bottom with a long upper wick — potential reversal down). Learning to read candles is the foundation of chart analysis.
Support and Resistance
Support is a price level where buying pressure tends to prevent further decline — think of it as a floor. Resistance is where selling pressure prevents further rise — a ceiling. These levels form because traders remember previous price reactions and act similarly when price returns.
When support breaks, it often becomes resistance (and vice versa). The more times a level is tested, the stronger it becomes — but when it finally breaks, the move is often powerful. Drawing accurate support and resistance lines is one of the most valuable skills in trading.
Trend Lines and Channels
A trend line connects two or more price points and extends into the future. In an uptrend, connect the lows — price should bounce off this ascending line. In a downtrend, connect the highs. If price breaks through the trend line decisively, the trend may be reversing.
A channel forms when you draw parallel lines along the highs and lows. Price tends to bounce between the channel boundaries. Channels are excellent for identifying trade entries (buy at support, sell at resistance) and recognising when a breakout is developing.