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FINANCE FUNDAMENTALS · A QUESTION-AND-ANSWER LEARNING GUIDE

What Is
Technical Analysis?

Learn to read market behaviour through price, volume, trends and disciplined decision rules.

By Prof. V. Ravichandran · The Mountain Path Academy
Updated 15 October 2026 · 21 questions · 15–20 minute learning guide

THE MOUNTAIN PATH ACADEMY

TECHNICAL ANALYSIS at a Glance

Observe price. Define a scenario. Plan the risk. Review the evidence.

THE INPUTS

Price & volume

Begin with reliable observations and a stated timeframe.

THE INTERPRETATION

Trend & momentum

Describe market structure and the pace of change.

THE DISCIPLINE

Risk & review

State invalidation, consider execution and test the rules.

A framework for conditional decisions. All numerical examples in this guide are hypothetical.

LEARNING PATH · 01

Start here: reading market behaviour

Q01 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.

Q02 What does a chart tell us that a financial statement does not?

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.

Q03 What are its traditional assumptions?

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.

Q04 How does it differ from fundamental analysis?

LensFundamental analysisTechnical analysis
Main questionWhat might the business or security be worth?How is the market behaving?
Typical inputsCash flows, earnings, balance sheet, industry and economyPrice, volume, trends and indicators
Typical outputValuation and business thesisConditional price scenario and invalidation level

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

LEARNING PATH · 02

Understand the chart before the signal

Q05 What do open, high, low and close mean?

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.

Read one hypothetical daily candle

Open ₹100; high ₹108; low ₹98; close ₹106. The session range is ₹10; the body spans ₹6. A higher close than open describes that interval, not the next day.

Q06 Why do timeframe and data quality matter?

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.

Q07 What is trading volume?

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.

LEARNING PATH · 04

Meet the tools you will learn next

Q12 Where does Dow Theory fit?

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? →

Q13 What are SMA and EMA?

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.

SMA(n) = sum of the latest n closing prices ÷ n
EMA today = α × close today + (1 − α) × previous EMA
Common choice: α = 2 ÷ (n + 1)
Five-session calculation

Closes ₹100, ₹102, ₹101, ₹104 and ₹108 give SMA(5) = ₹515 ÷ 5 = ₹103. If the previous EMA(5) was ₹102, today’s EMA is (⅓ × ₹108) + (⅔ × ₹102) = ₹104. An EMA must have a stated starting value.

Q14 How do ROC, RSI and MACD differ?

IndicatorWhat it summarisesReading caution
ROCPercentage price change over n periods: (P today / P n periods ago − 1) × 100A positive return is not a promise of another gain.
RSIA 0–100 momentum measure using smoothed gains and lossesTraditional 70/30 thresholds are context-dependent; strong trends can stay extreme.
MACDDifference between two EMAs, commonly 12 and 26 periods; often compared with a 9-period signal EMACrossovers can whipsaw in ranges; platform settings and seeding matter.

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

Q15 Do several agreeing indicators provide independent evidence?

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.

LEARNING PATH · 05

Turn a chart view into a testable plan

Q16 What should a written trading hypothesis contain?

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.

Q17 How do risk, reward and position size connect?

A hypothetical long-position exercise

Assume entry ₹500, planned stop ₹480 and target ₹550. Planned risk is ₹20 per share; potential reward is ₹50. Reward-to-risk is 2.5:1. With a ₹2,000 planned loss budget, 100 shares exhaust that budget before costs. At entry, this position requires ₹50,000 of capital.

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.

Q18 Can I change the inputs and calculate the plan?

Interactive long-position planning exercise

Illustrative inputs only. Enter positive prices with stop < entry < target.

Whole shares; excludes fees, taxes, slippage, liquidity constraints and capital limits. A loss budget is an input, not a recommendation.

Q19 What should a backtest check?

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.

Q20 How should a beginner practise?

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.

Pause and explain: a price rises from ₹200 to ₹220. What is ROC, and what does it predict?

ROC is (220 ÷ 200 − 1) × 100 = 10%. It measures the past change over the chosen interval. It does not determine the next return.

LEARNING PATH · 06

Key takeaways and your next lesson

Q21 What should I remember?

  • Read the data and timeframe before interpreting a signal.
  • Separate description, hypothesis and prediction.
  • Define what would invalidate your view.
  • Evaluate execution, costs and failed signals.
  • Use indicators as tools for structured analysis, not certainty.
YOUR LEARNING ROADMAP

Concepts to study across this series

TopicConcepts and practical work
Dow TheoryPrimary/secondary/minor trends, bull and bear phases, closing-price confirmation, retracements and price–volume examples.
Candlestick chartsOHLC anatomy, chart scales, doji, hammer, shooting star and engulfing figures, with prior-trend context and confirmation.
Support and resistanceZones, rolling extremes, role reversal, breakouts, breakdowns, false moves, trendlines and channels.
Moving averagesSMA/EMA calculations and seeding, slope, price and double crossovers, golden/death crosses and whipsaws.
Momentum indicatorsROC, Wilder-smoothed RSI, MACD line/signal/histogram, divergence and edge cases.
Further topics to addReversal and continuation patterns: head and shoulders, double tops/bottoms, triangles, flags and pennants; measured targets, market efficiency and fair backtesting.

Explore the illustrated Support and Resistance guide →

EXCEL PRACTICE

Connect the concepts to a workbook

In the Session 9 RSI teaching example, the first 14 price changes contain total gains of ₹12.80 and total losses of ₹2.50. Average gain = 12.80 ÷ 14 = 0.914286; average loss = 2.50 ÷ 14 = 0.178571. Relative strength is 5.12, giving RSI = 83.66.

Update using Wilder’s method

The next price change is +₹1.80. New average gain = (0.914286 × 13 + 1.80) ÷ 14 = 0.977551. New average loss = (0.178571 × 13 + 0) ÷ 14 = 0.165816. The updated RSI is 85.50. This describes strong recent upward momentum; it does not establish that the next price must fall.

Three calculation habits

  • Seed and warm up: n price changes require n + 1 closing prices for the first RSI. State EMA and MACD signal-line starting rules too.
  • Separate recognition from availability: a swing high using five later sessions becomes known five sessions after the plotted peak. Backtests must delay its use accordingly.
  • Test prior levels: compare today’s close with yesterday’s rolling support/resistance. A same-day rolling maximum includes the tested price and cannot be strictly exceeded by that price.

Worked numbers adapted from Session 9’s RSI & MACD workbook, “3. RSI Calculation”. Additional topics for the series: zero-loss and flat-price RSI cases, signal-line versus zero-line MACD crossings, and the difference between a crossover event and an existing moving-average regime.

Sources and further learning

Teaching examples, chart and planning calculator: The Mountain Path Academy. No live market data is used. Educational material; examples are not security recommendations.