Technical Analysis: Complete Beginner Guide

What Technical Analysis Actually Does

Technical analysis uses price history and volume to assess the balance between buyers and sellers. It does not predict the future — it identifies conditions where probabilities favor one outcome over another. Used alongside fundamental analysis, it helps you buy good businesses at better prices and avoid catching falling knives.

Reading Candlestick Charts

Each candlestick shows four data points: open, high, low, and close. A green candle closes above its open (buying pressure won that session). A red candle closes below (selling pressure won). The thin lines above and below the body are wicks — they show how far price moved intraday before reversing. A small body with long wicks signals indecision between buyers and sellers.

Moving Averages

• 20-day MA: Short-term trend. Stocks holding above it are in near-term uptrends.
• 50-day MA: Medium-term trend. Institutional investors often buy dips to the 50-day.
• 200-day MA: Long-term trend. Price above the 200-day = long-term uptrend. Below = long-term downtrend.
• Golden cross: 50-day crosses above 200-day — historically bullish signal.
• Death cross: 50-day crosses below 200-day — bearish signal.

RSI and MACD

RSI (Relative Strength Index) measures momentum on a 0–100 scale. Above 70 = overbought (may be due for a pullback). Below 30 = oversold (may be due for a bounce). MACD shows the relationship between two moving averages. When the MACD line crosses above its signal line, that is a bullish momentum shift. These are most useful for confirming a trend, not predicting reversals.

Volume Is the Confirmation Tool

Any price move — breakout, breakdown, or reversal — is more credible with above-average volume. A stock breaking to new highs on 3x normal volume is far more significant than the same move on light volume. Always check volume before acting on a price signal.