Technical AnalysisTA
Technical analysis is the study of past prices and volume, usually on charts, to judge market behaviour and plan trades — as opposed to analysing a business or economy.
Technical analysis asks what price is doing, not why. By studying charts of past prices and volume, traders look for trends, levels and patterns that help them decide when to enter, where to exit and how much to risk. It does not predict the future, but it gives structure to decisions.
- Category
- Technical Analysis
- Reading time
- 4 min
- Also called
- Chart analysis, Charting
- Updated
Technical analysis in plain words
Technical analysis can be applied to stocks, indices, commodities, futures or any market where supply and demand set the price.1
Fundamental analysts focus on why a price is what it is; technical analysts focus on the price itself.1 Compare Fundamental Analysis.
The basic tools are trend, Support and Resistance, Volume and indicators such as moving averages and Relative Strength Index. An uptrend holds while pullbacks make higher lows and advances make higher highs.2
How to analyse a chart, step by step
Start with the trend
Identify whether price is trending up, down or sideways.2
Mark support and resistance
Find levels where price turned before.
Check volume
See whether volume confirms the move — see Volume.
Add one or two indicators
Use momentum or trend tools to confirm, not to decide alone.
Plan the trade
Set entry, stop and target based on the levels.
Remember the limits
Charts cannot foresee shocks such as regulatory or geopolitical news.1
Worked examples
Example 1 — Moving average filter
Uptrend biasPrice is $120; the 50-day moving average is $112.
| Distance | $120 − $112 = $8 |
| Percent above | $8 ÷ $112 ≈ 7.1% |
Price above a rising average supports an uptrend reading, used together with higher lows and higher highs.1
Example 2 — Trade from a level
3 : 1 planSupport at $115. You buy at $116, stop $113, target $125, 200 shares.
| Risk | ($116 − $113) × 200 = $600 |
| Reward | ($125 − $116) × 200 = $1,800 |
| Ratio | $1,800 ÷ $600 = 3 : 1 |
The chart gives logical levels for the stop and target — see Risk-to-Reward Ratio.
Example 3 — A news gap
−$2,200Overnight news gaps the stock down from $116 to $105, past the $113 stop.
| Planned loss | ($116 − $113) × 200 = $600 |
| Actual loss | ($116 − $105) × 200 = $2,200 |
Technical analysis cannot predict sudden events, so position size must allow for gaps.1
Technical vs. fundamental analysis
| Aspect | Technical | Fundamental |
|---|---|---|
| Main question | What is price doing? | What is it worth? |
| Data | Price and volume | Earnings, economy, balance sheets |
| Typical horizon | Days to months | Months to years |
| Main tool | Charts | Reports and models |
When technical analysis helps
Advantages and disadvantages
Advantages
- Works on any liquid market.
- Gives clear levels for risk control.
- Quick to apply to many charts.
- Combines well with fundamental views.
Disadvantages
- Signals are often false.
- Interpretation is subjective.
- Cannot foresee news shocks.
- Easy to over-fit indicators to the past.
Going deeper
Read as far as you need. Each level builds on the one before it.
Price reflects supply and demand
Beginner
Technical analysis works where supply and demand set the price, which covers most traded markets.1
What vs. why
Intermediate
Technicians focus on price movements; fundamentalists ask why the price is what it is.1 Many traders use fundamentals to pick what to trade and charts to choose when.
Testing and limits
Advanced
Rules should be tested on past data with costs included — see Backtesting — and position sizes must allow for events charts cannot foresee.1
Common mistakes
Too many indicators
Several tools showing the same thing add confidence, not information.
Ignoring the bigger timeframe
A signal against the higher-timeframe trend is weaker.
Treating patterns as certain
Every pattern fails sometimes.
No risk plan
Analysis without a stop is only an opinion.
Check your understanding
Test yourself before moving on. Each answer comes with an explanation.
Key points to remember
- Technical analysis studies past price and volume.
- It focuses on what price does, not why.
- Trend, levels, volume and indicators are the main tools.
- It helps plan entries, stops and targets.
- It cannot predict sudden news events.
Frequently asked questions
Does technical analysis work?
Do I need indicators?
Can it be used for long-term investing?
Further learning
- Trading Chart
The main canvas of technical analysis.
- Support and Resistance
The most widely used levels.
- Moving Average
A first indicator to learn.
- Fundamental Analysis
The other main school of analysis.
Sources
This article is written in our own words. The sources below support the specific facts, rules and figures marked with a number in the text. Links open the original publisher’s page.
- StockCharts ChartSchool. Technical Analysis (opens in a new tab) Checked .
- Fidelity. Basic concepts of trend (opens in a new tab) Checked .
Read more elsewhere
- Trading Metrics (our sister site): Trading Indicators (opens in a new tab)
Educational content, not financial advice. Examples use hypothetical prices and simplified costs; actual fees, margin rules and regulations vary by broker, market and country. Trading Metrics is our sister site, under the same ownership; we are not affiliated with any other publisher linked above. Last reviewed . Report an error or request a source credit.