Introduction to Technical Analysis: Tools, Signals, and Setups

What Is Technical Analysis?

Technical analysis (TA) studies price and volume to understand supply and demand. Rather than asking why something moves, TA focuses on how it moves — the structure of trends, the rhythm of swings, and patterns that repeat as human behavior repeats.

Core Assumptions

• Markets discount information: Price reflects available information quickly.
• Prices trend: Up, down, or sideways — and trends persist until they reverse.
• History rhymes: Patterns repeat because crowd behavior repeats.

Reading Price Action

Price action is the foundation. Learn to see structure before adding indicators.

Trend Structure

• Uptrend: Higher highs (HH) and higher lows (HL).
• Downtrend: Lower highs (LH) and lower lows (LL).
• Range: Swings oscillate between support and resistance.

When structure shifts (for example, an uptrend prints a lower high and lower low), momentum often changes. Many traders wait for a break of structure (BOS) plus a retest to confirm.

Support and Resistance (S/R)

• Support: Areas where buying demand previously stopped declines.
• Resistance: Areas where selling supply previously capped advances.
• Role reversal: Broken resistance often acts as new support, and vice‑versa.

Mark levels that price has respected multiple times on higher timeframes (daily/4H). Use them as decision zones for entries, profit targets, and invalidation.

Candlestick Context

• Impulse candles: Large body, small wicks → initiative activity.
• Rejection wicks: Long upper wick near resistance or long lower wick near support → failing attempt.
• Inside bars: Consolidation; breakout often follows.

Don’t use single candles in isolation. Combine wicks and bodies with trend and S/R for confluence.

Indicators That Add Signal (Without Noise)

Indicators summarize price/volume mathematically. Keep the chart clean — start with one or two.

Moving Averages (MAs)

• Purpose: Define trend and dynamic S/R.
• Common sets: 20/50/200 EMA or SMA.
• Usage: Price above rising 20/50 → bullish bias; pullbacks to the 20/50 can be entries.

RSI (Relative Strength Index)

• Purpose: Momentum and regime.
• Signals: 40–90 bull regime; 10–60 bear regime. Divergences can warn of slowdowns.

MACD

• Purpose: Momentum shifts via moving average differentials.
• Signals: Crosses and histogram turns help spot early acceleration/deceleration.

Volume

• Rising volume on breakouts adds credibility.
• Dry‑ups during pullbacks suggest shallow, healthy retracements.

Simple, Actionable Setups

1) Trend Pullback

• Bias: Uptrend confirmed on higher timeframe.
• Trigger: Pullback to 20–50 EMA near prior swing with small rejection wicks.
• Risk: Stop below swing low; size via ATR.
• Targets: Prior high, measured move, or 1:2+ R:R.

2) Breakout‑Retest

• Bias: Base forming under resistance with rising volume.
• Trigger: Break above resistance, then retest and hold as support.
• Risk: Invalidation on clean move back into the base.
• Targets: Height of base projected from breakout; trail on higher lows.

3) Range Fade

• Bias: ADX low; repeated bounces between S/R.
• Trigger: Rejection wick at range boundary with momentum stall.
• Risk: Stop just beyond the boundary; flip bias on true break.
• Targets: Mid‑range first, opposite boundary second.

Timeframes and Multi‑Timeframe Analysis

Top‑down analysis improves alignment:

• Higher timeframe (Daily/4H): Define trend and big S/R.
• Execution timeframe (1H/15m): Time entries and stops.
• Confirmation: Only take longs when higher timeframe trend and structure support long bias.

Risk First, Signals Second

Any setup needs clear invalidation and risk sizing. Consider ATR‑based stops, fixed fractional risk (for example 1% per trade), and portfolio heat limits.

Common Mistakes

• Using too many indicators; conflicting signals.
• Chasing extended moves far from MAs.
• Ignoring higher timeframe context.
• No predefined stop or target; letting emotions drive exits.

A Minimal TA Workflow

1. Mark higher timeframe trend and key S/R.
2. Wait for price to approach a decision zone.
3. On execution timeframe, look for your trigger (pullback, retest, rejection).
4. Place stop at technical invalidation; size position by risk.
5. Plan targets in advance; trail if trend accelerates.

Start simple. Master structure and risk management before adding complexity. Over time you can incorporate advanced tools (volume profile, market internals, volatility models) — but clarity beats clutter.