Technical Analysis Basics: Support, Resistance, Moving Averages and RSI
Charts can't predict the future, but they reveal investor psychology. A beginner-friendly guide to the most widely used technical analysis tools.
Technical analysis studies price and volume history to identify trends and potential turning points. While fundamental analysis asks "what is this business worth?", technical analysis asks "what are buyers and sellers doing?" Many long-term investors use a few technical tools alongside fundamentals to time entries and manage risk.
Price Charts
- Line charts connect closing prices — simple and clean.
- Candlestick charts show the open, high, low and close for each period. Green (or hollow) candles close higher than they opened; red (or filled) candles close lower.
- Timeframes range from minutes to months. Long-term investors usually focus on daily, weekly and monthly charts.
Trends
The most basic idea in technical analysis is that prices move in trends:
- Uptrend: higher highs and higher lows.
- Downtrend: lower highs and lower lows.
- Sideways (range): prices oscillate between two levels.
Support and Resistance
Support is a price level where buying interest has historically stopped declines. Resistance is a level where selling has capped rallies. A decisive break through either, ideally on heavy volume, often signals a new trend. Once broken, old resistance frequently becomes new support.
Moving Averages
Moving averages smooth daily noise:
- 50-day moving average: a medium-term trend gauge.
- 200-day moving average: a widely watched long-term trend line.
- Golden cross: the 50-day crosses above the 200-day — often viewed as bullish.
- Death cross: the 50-day crosses below the 200-day — often viewed as bearish.
Momentum Indicators
- RSI (Relative Strength Index): ranges from 0 to 100. Readings above 70 are often called overbought; below 30, oversold.
- MACD: compares two moving averages to highlight changes in momentum.
Volume
Volume confirms conviction. A breakout on heavy volume is more meaningful than one on light volume.
Limitations
Technical signals describe probabilities, not certainties, and they frequently give false signals. They work best combined with solid fundamentals — see our stock analysis checklist — and strict risk management, as covered in our risk guide.
Frequently Asked Questions
Does technical analysis really work?
What is the best indicator for beginners?
Should long-term investors use charts?
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