What is Technical Analysis?
Technical analysis (TA) is the study of past price movements to forecast future price direction. Instead of analyzing company earnings or economic data, technical analysts focus purely on charts - because they believe all relevant information is already reflected in price.
The Core Philosophy
"Price discounts everything." Every piece of information - news, earnings, sentiment - is already priced in. The chart tells the complete story.
The Three Pillars of Technical Analysis
Price Discounts Everything
All known information (economic, political, psychological) is already reflected in the current price. You don't need to know WHY - just WHAT the price is doing.
Price Moves in Trends
Markets don't move randomly. They trend - up, down, or sideways. Identifying and trading with the trend is the foundation of technical trading.
History Repeats Itself
Human psychology doesn't change. The same patterns of fear and greed create similar chart patterns across different markets and time periods.
💡 Why Technical Analysis Works
It's partly self-fulfilling prophecy. When millions of traders watch the same levels and patterns, their collective action at those levels creates the very reactions they expect. This makes TA more reliable, not less.
Types of Price Charts
Before analyzing price, you need to choose how to visualize it. Each chart type has strengths and weaknesses.
Line Chart
📈 Line Chart
SimplestConnects closing prices with a continuous line. Shows the overall trend clearly but hides intraday price action.
Pros
- Clean, easy to read
- Great for identifying trends
- Good for beginners
Cons
- No open/high/low data
- Misses important price action
- Limited trading signals
Best for: Quick trend identification, long-term analysis, presentations
Bar Chart (OHLC)
📊 Bar Chart
TraditionalEach bar shows Open, High, Low, and Close (OHLC) for one period. The horizontal tick on the left is the open, on the right is the close.
Pros
- Shows all price data
- Compact visualization
- Traditional Western style
Cons
- Harder to read than candles
- Less visual pattern recognition
- Less popular today
Best for: Traders who prefer minimal visual noise
Candlestick Chart
🕯️ Candlestick Chart
Most PopularJapanese innovation from the 1700s. Each "candle" shows OHLC with a colored body (bullish/bearish) and wicks showing highs/lows.
Pros
- Visual representation of sentiment
- Easy pattern recognition
- Shows buying/selling pressure
- Industry standard
Cons
- Can be overwhelming at first
- Many patterns to learn
Best for: Almost everything - this is what you should learn
Use candlestick charts for all your trading. The visual information they provide is unmatched. We'll cover candlestick patterns in detail in Chapter 2.
Understanding Timeframes
The timeframe determines how much price data each candle/bar represents. The same currency pair looks completely different on different timeframes.
Common Timeframes
| Timeframe | Abbreviation | Each Candle = | Best For |
|---|---|---|---|
| 1 Minute | M1 | 1 minute of price | Scalping |
| 5 Minutes | M5 | 5 minutes of price | Scalping, day trading |
| 15 Minutes | M15 | 15 minutes of price | Day trading |
| 1 Hour | H1 | 1 hour of price | Day/swing trading |
| 4 Hours | H4 | 4 hours of price | Swing trading (popular) |
| Daily | D1 | 1 day of price | Swing/position (recommended) |
| Weekly | W1 | 1 week of price | Position trading |
| Monthly | MN | 1 month of price | Long-term investing |
Multi-Timeframe Analysis
The Top-Down Approach
Professional traders don't use just one timeframe. They use multiple timeframes to get the complete picture:
- Higher TF (trend): Identify the overall direction
- Trading TF (setup): Find your entry setup
- Lower TF (entry): Fine-tune your entry
Scalping
H1 → M15 → M5
Day Trading
H4 → H1 → M15
Swing Trading ✓
D1 → H4 → H1
Position Trading
W1 → D1 → H4
⚠️ Timeframe Reality Check
Lower timeframes = more noise, more signals, more false signals, more stress. Higher timeframes = cleaner signals, fewer trades, better risk/reward. Beginners should start with H4 and Daily charts.
Price Action Basics
Price action is the purest form of technical analysis - trading based on price movement alone, without indicators. It's what the chart shows you directly.
Key Price Action Concepts
📈 Trends
Uptrend: Higher highs and higher lows
Downtrend: Lower highs and lower lows
Sideways: Range-bound, no clear direction
Learn more: Trend Lines & Channels
🎯 Support & Resistance
Support: Price level where buying pressure overcomes selling
Resistance: Price level where selling pressure overcomes buying
Learn more: Support & Resistance
🕯️ Candlestick Patterns
Specific candle formations that signal potential reversals or continuations
Examples: Hammer, Engulfing, Doji, Pin Bar
Learn more: Candlestick Patterns
📐 Chart Patterns
Larger formations made of multiple candles
Examples: Head & Shoulders, Triangles, Double Top
Learn more: Chart Patterns
What to Look For
These form the structure of the market. Identify them first.
Where has price bounced before? Those levels matter again.
Big candles = strong momentum. Small candles = indecision.
Long wicks show rejection. Price went there but couldn't stay.
Technical vs Fundamental Analysis
Two schools of thought dominate trading. Understanding both helps you find your edge.
📊 Technical Analysis
Studies price charts
- Focuses on WHAT is happening
- Uses charts, patterns, indicators
- Works on any timeframe
- Quick decision making
- "Price tells the story"
📰 Fundamental Analysis
Studies economic data
- Focuses on WHY price moves
- Uses economic reports, news, policy
- Better for long-term outlook
- Requires constant research
- "Value determines price"
🤝 The Best Approach: Combine Both
Use fundamentals to understand the big picture (which direction should price go?) and technicals to time your entries and exits (when to get in and out).
Example: Fundamentals say EUR/USD should rise due to interest rate differentials. Technicals tell you to buy when price pulls back to the 50 EMA.
Getting Started with Technical Analysis
Your Learning Path
You are here - understanding the foundation
Learn to read individual candles and patterns
Identify key price levels
Draw and trade trend lines
Your first indicator
Momentum indicators
Complex formations
Advanced levels
Recommended Charting Platforms
TradingView
Best for: Learning, analysis, community
Free tier available, excellent tools
MetaTrader 4/5
Best for: Actual trading execution
Industry standard, free with broker
cTrader
Best for: Advanced order management
Modern interface, good charting
🎯 Your First Assignment
Open a free TradingView account, pull up EUR/USD daily chart, and just observe. Look for swing highs and lows. Notice where price bounced. Don't trade - just watch and learn.
Key Takeaways
Technical analysis studies price charts to forecast future movements based on historical patterns.
Use candlestick charts - they provide the most information in the most visual format.
Start with higher timeframes (H4, Daily) - they're cleaner and more reliable.
Multi-timeframe analysis is essential - use higher TF for direction, lower TF for entry.
Price action is king - master chart reading before adding indicators.