Technical Analysis: The Basics

⏱ 12 min read  [ INTERMEDIATE ]

Technical analysis (TA) is the art of reading charts to predict where prices might go next. It does not always work — nothing in markets does — but it gives traders a framework for making decisions based on data rather than emotion.

The core idea

Technical analysts believe that all available information — news, fundamentals, investor sentiment — is already reflected in the price. So instead of asking ‘is this company profitable?’, they ask ‘what does the chart tell us about where buyers and sellers are?’

TA is about probabilities, not certainties. A good trader is right 55% of the time and manages risk on the other 45%.

Support and resistance — the foundation

Support is a price level where buyers have historically stepped in and stopped the price from falling further. Resistance is the opposite — a level where sellers consistently push the price back down.

Think of support as a floor and resistance as a ceiling. When price breaks through resistance, that level often becomes new support. This is one of the most reliable patterns in all of trading.

Trends — the most important concept

  • Uptrend: price makes higher highs and higher lows — buyers are in control
  • Downtrend: price makes lower highs and lower lows — sellers are in control
  • Sideways: price moves within a range — neither side has clear control

The golden rule of trading: ‘The trend is your friend.’ Trading with the trend is almost always safer than betting against it.

Volume — the confirmation tool

Volume shows how many units were traded in a given period. A price move on high volume is more significant than the same move on low volume. If Bitcoin rises 5% on unusually high volume, it suggests strong conviction behind the move. The same rise on low volume might just be a short-term blip.

Key indicators worth knowing

  • Moving Average (MA) — smooths out price noise to show the trend direction. The 200-day MA is watched by virtually every serious trader.
  • RSI (Relative Strength Index) — measures whether an asset is overbought (above 70) or oversold (below 30). A potential signal to sell or buy respectively.
  • MACD — shows momentum by comparing two moving averages. When the MACD line crosses above the signal line, it can indicate upward momentum.
Key takeaway: Learn to identify trends, support and resistance levels, and confirm moves with volume. These three concepts alone will put you ahead of most retail investors.

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