Technical Analysis Basics

Chart Types

• •Candlestick charts — show open, high, low, and close for each period. Green = price went up. Red = price went down. The most popular chart type by far.
• •Line charts — plot closing prices as a continuous line. Good for seeing overall trends, but lack detail.
• •Bar charts — similar to candlesticks but use horizontal lines for open/close. Less visual but used by some traditional traders.

Support and Resistance

Support is a price level where buying pressure tends to prevent further decline. Think of it as a floor. Resistance is where selling pressure tends to prevent further rise. Think of it as a ceiling.

When support is broken, it often becomes resistance (and vice versa). The more times a level is tested, the stronger it is. Round numbers (£100, £50, etc.) often act as psychological support/resistance.

Key Indicators

• •Moving Averages (MA) — smooth out price data to show the trend. 50-day and 200-day MAs are most popular. Price above MA = bullish. Below = bearish.
• •RSI (Relative Strength Index) — measures momentum on a 0–100 scale. Above 70 = overbought. Below 30 = oversold. Useful for spotting potential reversals.
• •MACD — shows the relationship between two moving averages. Signal line crossovers suggest buy/sell opportunities. The histogram shows momentum strength.
• •Volume — confirms price moves. A breakout on high volume is more reliable than one on low volume. Volume drying up during a trend suggests it may be ending.

Common Chart Patterns

• •Head and Shoulders — reversal pattern with three peaks (middle highest). Signals a trend change from bullish to bearish.
• •Double Top/Bottom — price tests the same level twice and reverses. Double top = bearish. Double bottom = bullish.
• •Triangles — converging trend lines. Ascending = bullish. Descending = bearish. Symmetrical = could break either way.
• •Flags and Pennants — small consolidation patterns within a trend. Usually continuation patterns — the trend resumes after the pause.