Technical Analysis
Candlesticks, support and resistance, trend structure, indicators and chart patterns — what they really tell you and how to combine them.
This lesson builds on: Timeframes and Top-Down Analysis, Risk Management
Technical analysis is the study of price itself — reading charts to judge where a market is more likely to go, based on where it's been and how it's behaving. It is not fortune telling, and honest technicians don't claim certainty. The claim is narrower and more defensible: prices move in recognisable patterns because the humans and algorithms trading them respond to the same levels, the same fears, and the same incentives, over and over.
This lesson gives you the four pillars: candlesticks, support and resistance, trend, and indicators — then shows how patterns emerge from them.
Pillar 1: Candlesticks
A candlestick compresses a period of trading into four prices — open, high, low, close — drawn so that the battle between buyers and sellers is visible at a glance. Explore the anatomy below: hover or tap each part.
Body. The thick rectangle between the open and the close. A green (bullish) body means the close is above the open — buyers won the period. A tall body signals conviction; a tiny body signals indecision.
Hover, tap or use the buttons to explore each part of the candle.
Individual candles become meaningful through their proportions and context:
- A long body with tiny wicks is conviction — one side controlled the entire period.
- A long wick with a small body is rejection — price went somewhere and was forcefully refused. A long lower wick at support (a "pin bar" or "hammer") shows buyers defending; a long upper wick at resistance shows sellers capping.
- A tiny body with wicks both sides (a "doji") is indecision — often a pause, sometimes a turning point, never a signal on its own.
- An engulfing candle — whose body completely swallows the previous candle's body in the opposite direction — marks a sharp shift in control, most meaningful after an extended move into a significant level.
The phrase doing the work in every case is at a significant level. A hammer in the middle of nowhere is noise. The same hammer printed at a level the market has defended three times is information.
Pillar 2: Support and resistance
Support is a price area where falling markets have repeatedly stopped falling; resistance is where rising markets have repeatedly stopped rising. These aren't magic lines — they're footprints of real order flow: clusters of resting orders, institutional interest, and the memory of everyone who bought or sold there last time.
Working rules that separate useful levels from clutter:
- Zones, not lines. Price respects areas a few pips deep, not exact ticks. Draw rectangles, not hairlines.
- Fewer, higher-timeframe levels. The levels that matter are obvious on the daily chart. If you squint to see it, it won't hold anything.
- Touched and rejected repeatedly = stronger. Each defended test adds evidence (though a level tested many times in quick succession is often being eroded).
- Broken support becomes resistance, and vice versa. This "role reversal" is one of the most reliable behaviours on charts — old battle lines change sides.
Pillar 3: Trend
Markets move in one of three states: uptrend (a staircase of higher highs and higher lows), downtrend (lower highs and lower lows), or range (sideways between support and resistance). Identifying the state on your context timeframe is the single highest-value judgement in technical analysis, because it dictates strategy: trends reward joining pullbacks in the trend's direction; ranges reward fading the edges; and misreading which regime you're in is why the same tactic wins one month and bleeds the next.
The cleanest trend tool is no indicator at all — it's marking the swing highs and swing lows and asking whether the staircase is intact. The trend "breaks" when the pattern breaks: an uptrend that prints a lower low has, at minimum, paused. (Smart Money Concepts, next lesson, formalises exactly this idea as "market structure".)
Pillar 4: Indicators
Indicators are calculations drawn on the chart — every one of them derived from the same price (and sometimes volume) data you can already see. They add convenience and objectivity, not new information. The useful core:
| Indicator | What it measures | Honest use |
|---|---|---|
| Moving averages (20/50/200) | Smoothed trend direction | Trend filter and dynamic support/resistance in trends |
| RSI (14) | Momentum: speed of recent gains vs losses | Spotting stretched moves and divergence; poor as a standalone signal |
| ATR | Average true range: current volatility | Sizing stops to market conditions — invaluable and underrated |
| MACD | Momentum shifts via moving-average crossovers | Confirming momentum behind a move |
Two warnings earned by generations of losses. First, indicator stacking: adding a fifth oscillator does not add a fifth opinion — most indicators are the same price data reshaped, so they agree with each other in a way that feels like confirmation and isn't. Two or three tools with distinct jobs (one trend, one momentum, ATR for volatility) beat ten every time. Second, overbought is not a sell signal: in a strong trend, RSI can sit above 70 for weeks while price climbs. Stretched means stretched, not finished.
Chart patterns: structure repeating
Zoom out from candles and the pillars combine into larger shapes traders have named for a century:
- Continuation patterns — flags, pennants, triangles: a strong move, a brief compressing pause, then (often) continuation. Tradeable because pauses in trends attract the same behaviour repeatedly.
- Reversal patterns — double tops and bottoms, head and shoulders: a trend that tries to continue, fails at a similar level, and breaks its own structure. Note what these really are: support/resistance plus a trend-structure break, wearing a costume.
- Ranges — the most common "pattern" of all. Edges are tradeable; middles are chop.
Patterns are probabilistic tendencies, not promises. The professional use is always the same shape: pattern suggests a scenario → level defines where it's wrong → that invalidation point is your stop, and the risk management lesson tells you what size that stop allows.
Putting it together: one coherent method
A complete technical read, using everything above and the top-down routine from the timeframes lesson:
- Daily chart: what's the trend state? Mark the two or three zones that matter.
- H4: is price approaching one of those zones in a way that fits the trend?
- At the zone: does the candlestick behaviour show rejection or acceptance? Does momentum (RSI/MACD) confirm or diverge?
- Define the trade: entry near the zone, stop beyond invalidation (ATR-checked for breathing room), target at the next opposing level — take it only if the risk-to-reward clears your minimum.
Every element answers a different question — trend gives direction, levels give location, candles give timing, indicators give confirmation, and risk management gives size. Technical analysis fails when one element is asked to do all five jobs.