TECHNICAL ANALYSIS INTRO
Plain English
Technical analysis is reading stock price charts to predict where the price will go next. Instead of studying the business, you study the behavior of other traders through patterns in price and volume. It's like reading the crowd.
Going deeper
Technical analysis assumes that all known information is already reflected in the price, that prices move in trends, and that history tends to repeat itself. Technicians use charts (candlestick, bar, line), indicators (moving averages, RSI, MACD), and patterns (head and shoulders, triangles, flags) to identify potential trading opportunities. Key concepts include trends (uptrend, downtrend, sideways), support (price floors where buying emerges), resistance (price ceilings where selling emerges), and volume confirmation. Technical analysis is most useful for timing entries and exits.
Examples
Moving Average Crossover
The 50-day moving average crosses above the 200-day moving average (a 'Golden Cross'). This bullish signal suggests the short-term trend has turned upward. Many traders use this as a buy signal.
RSI Divergence
The stock makes a new high at $120, but the RSI indicator fails to make a new high — it shows lower momentum. This 'bearish divergence' warns that buying pressure is weakening despite new highs. A pullback may be coming.