What is Technical Analysis?
Technical Analysis (TA) is the study of historical price action to predict future price movements. It relies on the belief that history repeats itself.
The 3 Pillars of TA
- Price discounts everything: All news and fundamental data are already reflected in the price.
- Price moves in trends: Up, down, or sideways.
- History repeats itself: Chart patterns formed in the past often work in the future.
Key Concepts
Support & Resistance
- Support: A price level where buying is strong enough to stop the price from falling.
- Resistance: A price level where selling is strong enough to stop the price from rising.
Trendlines
Connecting the lows in an uptrend or the highs in a downtrend creates a trendline. A break of a trendline can signal a reversal.
Candlestick Patterns
- Doji: Indecision.
- Hammer: Bullish reversal signal.
- Engulfing: Strong reversal signal.
Start by identifying the major trend on a higher timeframe (Daily/4H) before looking for trade setups on lower timeframes.