Charts and analysis
Technical Analysis: Reading What Price Is Telling You
Reading price and volume to judge where supply and demand sit. A way of describing what has already happened clearly enough to make a decision, rather than a prediction.
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?
It is worth being precise about what this does and does not give you, because the field is full of people claiming far more than the evidence supports.
Read a chart top down
Beginners start with the smallest timeframe and the most indicators. That is exactly backwards. Work from the outside in:
- 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.
- Levels, on the daily chart. Mark where price has repeatedly reversed: three or four lines rather than twenty.
- Volume. Did the recent move have participation behind it, or did it drift on thin trade?
- The current candle. Only now does a candlestick pattern mean anything, because only now do you know where it is happening.
If a chart does not present a clear answer at step one, the correct action is usually to 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 create real orders.
Two practical points. First, treat levels as zones rather than lines, because price reverses near a level and rarely at it exactly. Second, once a level breaks decisively it frequently reverses role: old resistance becomes support, and vice versa.
Volume: the only input that is not price
Every popular indicator is a transformation of price, which means none of them can tell you anything price has not already said. Volume is different. It measures participation, and it answers a question price alone cannot: did anyone show up?
- A breakout on heavy volume means real size transacted at the new level. It is 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. That is distribution rather than a rest.
Indicators, and what they are for
Indicators summarise conditions quickly. They do not generate edges, because they are arithmetic 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 | "Overbought" is not a sell signal; strong trends stay overbought for weeks |
| 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 not as a signal. Using it to set stop distances means your stops adapt to how much a stock moves, instead of using an arbitrary percentage. Feed that distance into the position size calculator and your risk stays constant across instruments of very different volatility.
What technical analysis cannot do
- It cannot predict. Patterns describe tendencies rather than 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. Any pattern can be found retrospectively. Only a large sample tells you anything.
Used honestly, it is a decision framework: it tells you where you are wrong, roughly what a move might be worth, and therefore whether a trade is worth taking at all. That is useful, and it is considerably less than most courses promise.
Start with the candlestick pattern reference, then pair it with risk management; the two only work together.
Technical Analysis FAQs
What is technical analysis?
Technical analysis is the study of price and volume to judge where supply and demand sit in a market. Rather than valuing the business, it reads what participants have done: where they bought, where they sold, and where they were unwilling to do either.
Does technical analysis work?
It works as a framework for structuring decisions and defining risk. It does not work as a prediction engine, and the academic evidence for consistently profitable mechanical signals is weak. Its genuine value is that it identifies specific price levels where a thesis is proven wrong, which is what makes disciplined risk management possible.
How do you read a stock chart?
Work top down. Establish the trend on the weekly chart, mark the major support and resistance levels on the daily, then look at volume to see whether recent moves had real participation behind them. Only after all three do individual candles or indicators mean anything.
Which indicator is the most reliable?
None in isolation. Indicators are mathematical transformations of price, so they all lag price by construction and none contains information price does not already hold. They are useful for summarising conditions quickly, not for generating signals. Volume is the only common input that is not derived from price, which is why it adds the most.
Is technical or fundamental analysis better?
They answer different questions. Fundamental analysis asks what a business is worth; technical analysis asks what participants are currently doing. Long-term investors need the first. Traders holding for days or weeks need the second, because over those horizons price is driven by flow and positioning rather than by valuation.