Technical Analysis: Reading What Price Is Telling You

Technical analysis is reading price and volume to work out where supply and demand sit. It does not try to value the business. It asks a narrower question: where have participants been willing to buy and sell?

Let me be precise about what that does and doesn't give you, because the field is full of people claiming a great deal more than the evidence supports.

Read a chart top down

Beginners start with the smallest timeframe and the most indicators. That's exactly backwards. Work from the outside in:

1. Trend, on the weekly chart. Higher highs and higher lows, or lower highs and lower lows, or neither. This single question governs everything after it.
2. Levels, on the daily chart. Mark where price has repeatedly reversed. Three or four lines is plenty.
3. Volume. Did the recent move have real participation behind it, or did it drift up on thin trade?
4. The current candle. Only now does a candlestick pattern mean anything, because only now do you know where it is happening.

If a chart doesn't give you a clear answer at step one, the right move is usually to go and look at a different chart.

Support and resistance

The foundation of everything else. Support is a price area where buying has repeatedly overwhelmed selling. Resistance is where selling has repeatedly overwhelmed buying.

They work for an unglamorous reason: memory. Traders who bought at a level and watched it fall want out at break-even. Traders who missed a move want a second chance at the same price. Those intentions cluster, and clustered intentions turn into real orders.

Two practical points. First, treat levels as zones, because price reverses near a level and hardly ever at it exactly. Second, once a level breaks decisively it often swaps roles, so old resistance becomes support and the other way round.

Volume: the one input price cannot give you

Every popular indicator is a transformation of price, so none of them can tell you anything price hasn't already said. Volume is different. It measures participation, and it answers a question price alone can't: did anyone show up?

• A breakout on heavy volume means real size transacted at the new level. It's far more likely to hold.
• A breakout on light volume means price drifted through a thin order book. It reverses often.
• Declining volume in a pullback is healthy: sellers are losing interest.
• Expanding volume in a pullback is a warning. Size is leaving while price falls, which is distribution.

Indicators, and what they are for

Indicators summarise conditions quickly. They don't generate edges, because they're arithmetic performed on data you already have on screen.

Indicator	What it shows	Honest limitation
Moving average	Average price over N periods; trend direction	Lags by design; whipsaws badly in ranges
RSI	Speed and size of recent moves, 0–100	Strong trends hold it above 70 for weeks, so a high reading confirms strength
MACD	Relationship between two moving averages	Two lagging inputs; crossovers arrive late
Bollinger Bands	Volatility relative to a moving average	Touching a band means nothing on its own
ATR	Typical range of movement	Not directional, but excellent for sizing stops
VWAP	Volume-weighted average price for the session	Intraday only; resets each day

ATR is the one most worth adding early, and its value is in sizing. Use it to set stop distances and your stops adapt to how much a stock actually moves. Feed that distance into the position size calculator and your risk stays constant across instruments with very different volatility.

What technical analysis cannot do

• It cannot predict. Patterns describe tendencies, never outcomes.
• It cannot price news. An earnings miss overnight makes every level on the chart irrelevant before the open.
• It cannot fix bad risk management. The best read in the world, sized wrong, still ends an account.
• It cannot be proven on one chart. You can find any pattern after the fact. Only a large sample tells you anything.

Used honestly, it's a decision framework. It tells you where you're wrong, roughly what a move might be worth, and so whether the trade is worth taking at all. That's genuinely useful, and it's a good deal less than most courses promise.

Start with the candlestick pattern reference, then pair it with risk management, which is what turns a chart read into a position you can size.