What Is
Technical Analysis?

Technical analysis studies market-generated data, especially price and trading volume, to interpret market behaviour. Its tools include charts, trends, price levels and indicators. It helps frame conditional scenarios: what evidence supports a view, and what price action would invalidate it?

It does not calculate a company’s intrinsic value or guarantee the next price move. Further reading: Fidelity’s introduction.

A financial statement describes business performance over an accounting period. A chart records transactions and the prices buyers and sellers accepted. A profitable company can have a falling share price when expectations deteriorate; a loss-making company can rally when expectations improve.

Practitioners commonly assume that information influences prices, trends may persist, and recurring investor behaviour can produce familiar patterns. Treat these as working hypotheses. Information can arrive suddenly, trends can reverse, and similar-looking patterns can end differently.

The methods can be combined: valuation provides business context while a chart helps organise entry, exit and monitoring rules. Neither removes uncertainty.

Each bar or candle represents one interval. Open is its first traded price, high and low are its extremes, and close is its last traded price. A daily candle and a five-minute candle summarise different intervals.

Select a timeframe consistent with the question. A daily pullback may occur within a weekly uptrend. Keep chart interval, indicator lookback and intended holding period explicit. Check missing observations, duplicate timestamps, timezone, liquidity and treatment of dividends and splits before interpreting a historical chart.

Volume counts units traded during an interval. Compare it with the same instrument’s recent history, allowing for market structure and session effects. High volume shows greater activity; it does not by itself identify future direction. Spot currency markets and indices may lack a single directly comparable centralised volume series.

An uptrend is commonly described by higher swing highs and higher swing lows. A downtrend has lower swing highs and lower swing lows. A range shows repeated movement within a broad band. Identify swings using a consistent rule rather than selecting only points that support your preferred view.

The blue line uses invented closing prices. Gold points identify selected local highs; teal points identify selected local lows. The labels show rising swings. This diagram teaches structure and contains no live stock recommendation.

Support is a zone where declines have previously met buying interest. Resistance is a zone where advances have met selling interest. These are observed areas, not barriers. Mark a band and a timeframe, then consider both a hold and a break scenario.

No. A move beyond a prior boundary may reverse into the old range. Define a breakout rule in advance—for example, a closing price above a specified zone—and record failed signals too. Confirmation can delay a decision and still be wrong. Avoid redesigning the rule after seeing the outcome.

Dow Theory is a historical framework for interpreting broad market trends and confirmation. It distinguishes movements over different horizons. This introductory lesson uses its emphasis on trend structure as a starting point; the dedicated lesson will explain the principles in detail.

Continue to What Is Dow Theory? →

A simple moving average is the arithmetic mean of the latest n observations. An exponential moving average recursively gives more weight to recent prices. Both smooth prices and lag changes; neither is a prediction.

Fidelity’s RSI guide explains the conventional thresholds and their limitations.

Often they do not. Two moving averages and MACD are transformations of the same price history. Agreement can repeat the same information. Ask what each tool adds, and test whether a simpler rule performs similarly after costs.

Specify the instrument, data source, timeframe, entry condition, invalidation condition, intended exit, maximum planned loss and transaction costs. Record the plan before observing the result. A chart annotation becomes more useful when someone else can reproduce the rule.

A stop is an instruction, not a guaranteed execution price. Gaps, slippage and costs can make the realised loss larger. A target is only a scenario, and a favourable ratio alone does not establish a profitable strategy.

Use rules fixed before the evaluation period. Separate development and out-of-sample data; model costs and realistic execution. Avoid look-ahead bias, survivorship bias and repeated parameter searches on the same test sample. Compare with a relevant benchmark and inspect drawdowns, turnover and stability across periods. A strong historical result can fail in a different regime.

Start with a liquid instrument and a single timeframe. Annotate trend and levels, write both an upward and a downward scenario, and record paper decisions. Review all outcomes, including false breakouts and missed moves. Keep a dated journal so learning is based on recorded evidence rather than memory.