What is technical analysis?
Technical analysis (TA) is a method of evaluating financial assets based solely on historical prices and trading volume. The assumption is that all relevant factors are reflected in price and that price patterns repeat over time. TA doesn't predict the future — it provides a probabilistic framework for decision-making.
Support and Resistance
Support is a price level where buyers have historically "defended" against further decline. Resistance is a level where sellers dominate and block further upside. When price breaks through resistance, that level often becomes the new support — and vice versa.
Trends and trend lines
Trends are the heart of TA: uptrend (higher highs and higher lows), downtrend (lower highs and lower lows) and sideways (consolidation). Trade in the direction of the trend — "the trend is your friend."
Key indicators
- RSI — measures speed of price changes on a scale of 0-100. Below 30: oversold (potential upside). Above 70: overbought (potential decline).
- MACD — difference of two EMAs. Buy signal: MACD crosses above the signal line.
- Bollinger Bands — upper and lower band around a moving average. Bands squeezing → low volatility period → an explosive move is coming.
- Volume — increased volume confirms a breakout. Breakout without volume = "false breakout."
Candlestick patterns
- Doji — open and close nearly identical, indecision. Warning of a trend change.
- Hammer — long lower wick, small body at the top. Bullish reversal signal at the bottom.
- Engulfing — a larger candle "swallows" the previous one. Bullish or bearish signal.
- Shooting Star — long upper wick. Bearish reversal at the top.
Risk management and TA
Even the best TA setup works only 60-70% of the time. Therefore: always set a stop-loss before entering a position. Aim for a minimum 1:2 Risk/Reward ratio — risk €100, target €200 profit. Never risk more than 1-2% of total capital on one position.