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Technical Analysis

Price and volume data, organized into the five indicator families used by every professional charting platform: Trend, Momentum, Volatility, Volume, and Support/Resistance. Each indicator below has its formula, the signal it generates, and a working chart.

0. Live examples from this market

Below are real, recent examples of each technical concept — pulled fresh from the price history this site already loads each day. Hover any chart to read the exact close, moving averages and RSI on every bar. The orange dashed line marks the day the signal triggered.

If you don't see a panel, that concept didn't trigger anywhere in the universe in the last few months — that itself is useful information.

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Technical analysis rests on three premises (Murphy, 1999): price discounts everything; prices move in trends; history repeats because crowd psychology repeats.

Trend

  • Uptrend — sequence of higher highs and higher lows.
  • Downtrend — sequence of lower highs and lower lows.
  • Range — anything else. Most stocks are in a range ~70% of the time.

Support & resistance

A support is a price floor where buying overwhelms selling; a resistance is the ceiling. Once broken, support becomes resistance and vice versa (the polarity principle). The more times a level is tested without breaking, the more meaningful the eventual break.

2. Candlestick anatomy

Each candle shows four data points for a single period: open, high, low, close. Body = open → close. Wicks = the period's extremes. Long body + small wicks = strong conviction. Long wick + small body = rejection at that price.

Bull Marubozu
Strong buying
Bear Marubozu
Strong selling
Hammer
Bullish reversal at lows
Shooting Star
Bearish reversal at highs
Doji
Indecision
Spinning Top
Tug of war

Key reversal patterns to memorize

PatternBiasSetup
Bullish/Bearish EngulfingReversalDay 2's body fully swallows day 1's body. Higher volume = stronger.
Morning Star / Evening StarReversalBig trend candle → small body (pause) → big counter-trend candle.
Hammer / Hanging ManReversalLower wick ≥ 2× body. Hammer at bottom = bullish; same shape at top = bearish.
Three White Soldiers / Black CrowsReversalThree consecutive long candles in the new direction, each closing near its high/low.
Doji at S/RIndecisionOpen ≈ close. Powerful only when sitting on a key level.

Always wait for the next bar to confirm. Pattern + level + volume = the 3-factor edge.

3. Trend indicators

Simple & Exponential Moving Averages (SMA, EMA)

Formula: SMAN = average of the last N closes. EMA gives more weight to recent prices: EMAt = α·Closet + (1−α)·EMAt-1, where α = 2/(N+1).

Signal: price above the 200-day = long-term uptrend. Golden cross: 50-day crosses above 200-day (bullish). Death cross: opposite. EMA reacts faster, SMA filters noise better.

MACD (Moving Average Convergence/Divergence)

Formula: MACD line = EMA12 − EMA26. Signal line = EMA9(MACD). Histogram = MACD − Signal.

Signal: MACD crossing above signal = momentum turning up. Histogram expanding = momentum strengthening. Divergence (price makes new high, MACD doesn't) often precedes reversals.

ADX (Average Directional Index)

Formula: 14-period smoothed average of the directional movement index. Range 0–100.

Signal: ADX measures trend strength, not direction. ADX < 20 = no trend (range — use oscillators). ADX > 25 = trending (use trend-following). Pair with +DI / −DI to read direction.

Aroon

Formula: Aroon Up = 100 × (N − bars since N-period high) / N. Aroon Down = same with N-period low.

Signal: Aroon Up > 70 and Aroon Down < 30 = strong uptrend. Crossovers signal possible trend changes.

Parabolic SAR

Welles Wilder's stop-and-reverse system. Plots dots above (in downtrend) or below (in uptrend) price; the dot is the trailing stop. When price crosses the dots, the trend has flipped.

4. Momentum oscillators

RSI — Relative Strength Index (Wilder, 1978)

Formula: RSI = 100 − 100 / (1 + RS), where RS = 14-period average gain / average loss. Range 0–100.

Signal: >70 = overbought, <30 = oversold. In a strong trend RSI can stay overbought for weeks — treat extreme readings as confirmation, not a reversal trigger. Bullish divergence (price lower low, RSI higher low) is one of the most reliable signals on the chart.

Stochastic Oscillator

Formula: %K = 100 × (Close − LowN) / (HighN − LowN). %D = 3-period SMA of %K.

Signal: >80 overbought, <20 oversold. %K crossing above %D in the oversold zone = buy signal. Best in ranges; whipsaws in strong trends.

CCI — Commodity Channel Index (Lambert, 1980)

Formula: CCI = (Typical Price − SMA20) / (0.015 × mean deviation), where Typical Price = (H+L+C)/3. Typically oscillates between −100 and +100.

Signal: Above +100 = strong bullish momentum (often a buy in trends). Below −100 = strong bearish.

Williams %R

Formula: %R = −100 × (HighN − Close) / (HighN − LowN). Range −100 to 0.

Signal: Above −20 = overbought, below −80 = oversold. Inverted version of stochastic %K.

5. Volatility indicators

Bollinger Bands® (Bollinger, 1980s)

Formula: Middle band = 20-day SMA. Upper / lower = SMA ± 2 × 20-day standard deviation.

Signal: Bands contract during quiet markets (a squeeze often precedes a big move). A close outside the band signals an extreme — in a trend it's continuation, in a range it's a fade. Walking the band (price hugging the upper band) means a strong trend, not "overbought".

ATR — Average True Range (Wilder, 1978)

Formula: True Range = max(High−Low, |High−PrevClose|, |Low−PrevClose|). ATR = 14-period average of TR.

Signal: ATR is the universal risk-sizing tool. Set stops at 1.5–3 × ATR below entry. Position size = (account risk per trade) / (ATR × multiplier). ATR rising = expanding volatility; falling = compression.

Keltner Channels

EMA20 ± 2 × ATR10. Smoother than Bollinger Bands; better for trend-following systems.

6. Volume indicators

Volume is the fuel of every price move. Healthy uptrend: volume rises on up days, contracts on pullbacks. Reversals usually come with a volume climax.

OBV — On-Balance Volume (Granville, 1963)

Formula: add today's volume to OBV if close > prior close; subtract if close < prior close.

Signal: OBV trending up while price stalls = accumulation by big players. Divergence vs price often leads price.

Accumulation/Distribution Line

Formula: Money Flow Multiplier = ((C−L) − (H−C)) / (H−L). A/D adds MFM × Volume each period.

Signal: Rising A/D = buying pressure (close near high on heavy volume). Falling = distribution.

Chaikin Money Flow (CMF)

21-day sum of (Money Flow Multiplier × Volume) divided by 21-day sum of Volume. Range ≈ −1 to +1. CMF > 0.10 = sustained buying pressure.

VWAP — Volume-Weighted Average Price

Formula: Σ(Price × Volume) / Σ(Volume), reset each session.

Signal: The intraday benchmark institutions trade against. Price above VWAP = bulls in control; below = bears. Pullbacks to VWAP in trending stocks are high-probability entries.

7. Support / Resistance & chart patterns

Pivot Points (floor-trader pivots)

Formula: P = (High + Low + Close) / 3. R1 = 2P − Low. S1 = 2P − High. R2 = P + (High − Low). S2 = P − (High − Low).

Signal: Pre-computed S/R for the next session. Most useful for intraday and short-term swing trading.

Fibonacci retracement & extension

Retracement levels: 23.6%, 38.2%, 50%, 61.8%, 78.6%. Extension targets: 127.2%, 161.8%, 261.8%. Anchor from a swing low to swing high (uptrend); the 50–61.8% zone is where institutions typically re-enter trends.

Confluence rule: a Fib level is high-probability only when it overlaps a moving average, prior support/resistance, or a trendline.

8. Bullish chart patterns (reversal)

Reversal patterns appearing at the end of a downtrend that signal a probable shift to a new uptrend. Each pattern is shown as actual candlesticks with the key level annotated. Entry trigger is always the close above the dashed line, with stop just below the pattern's lowest swing.

Inverse Head & Shoulders

Three troughs — middle (head) lower than the two outer ones (shoulders). The horizontal connecting the two highs in between is the neckline. A close above the neckline triggers the reversal. Target = head-to-neckline distance projected up.

Double Bottom (W)

Two roughly equal lows with a peak between them. The peak is the trigger line. Buyers defended the same floor twice — supply is exhausted. Most reliable when the second low is on lower volume than the first.

Triple Bottom

Three failed attempts to break support. Stronger than double bottom because more buyers have now committed at the floor. Same trigger: close above the highest peak between the lows.

Falling Wedge

Both trendlines slope down, but resistance falls faster than support — selling pressure is fading. Bullish reversal in ~68% of cases (Bulkowski). Trigger: close above the upper trendline.

Rounding Bottom (Saucer)

Slow, gradual U-shaped reversal across many weeks. Indicates a long, quiet accumulation by patient buyers. Trigger: close above the rim. Often produces large multi-month rallies.

Cup & Handle

O'Neil/CANSLIM signature: rounded U (the cup) followed by a small downward-drifting consolidation (the handle). Trigger: close above the handle's high. Target = depth of cup added to breakout point.

9. Bearish chart patterns (reversal)

Mirror images of the bullish patterns above — they appear at the top of an uptrend and signal a probable shift to a downtrend. Entry trigger is always the close below the dashed line.

Head & Shoulders

Three peaks — the middle (head) higher than the two outer (shoulders). The horizontal connecting the two intervening lows is the neckline. Close below it triggers the short. Target = head-to-neckline distance projected down.

Double Top (M)

Two roughly equal highs with a trough between. Break below the trough confirms the reversal. Sellers defeated buyers at the same ceiling twice. One of the few patterns with statistically validated edge (Lo et al. 2000).

Triple Top

Three failed attempts to break resistance — buyers are exhausted. Trigger: close below the lowest trough. Stronger than double top because more sellers have committed at the ceiling.

Rising Wedge

Both trendlines slope up, but support rises faster than resistance — buying pressure is fading. Bearish reversal in ~70% of cases. Trigger: close below the lower trendline.

Rounding Top

Slow, dome-shaped distribution at the top of an uptrend. Buyers gradually run out of conviction. Trigger: break of the long support line. Typically followed by a sustained downtrend.

Broadening Top (Megaphone)

Higher highs and lower lows — a widening range driven by emotional volatility near a top. Lo et al. found this is one of the few patterns with statistical edge. Trigger: close below the lower expanding trendline.

10. Continuation patterns

Continuation patterns form during a pause in a trend — the prior trend usually resumes after the breakout. These are the highest-probability setups for swing traders because the existing trend is already in your favor. Inspired by the LuxAlgo continuation-pattern guide.

Bull Flag

Bullish. Sharp impulse up (the pole) + tight downward-sloping consolidation (the flag). The single highest-probability continuation pattern. Target = pole length added to the breakout point.

Bear Flag

Bearish. Sharp drop + tight upward-sloping consolidation. Mirror of the bull flag. Target = pole length projected down from the breakdown point.

Bullish Pennant

Bullish. Like a flag, but the consolidation forms a small symmetrical triangle instead of a parallel channel. Same projection rule as the flag.

Bearish Pennant

Bearish. Mirror of the bullish pennant — sharp drop followed by a small triangle, then continuation lower.

Ascending Triangle

Bullish. Flat resistance + rising support. Buyers absorb supply at the same level repeatedly until sellers run out. Trigger: close above resistance. Most reliable inside an existing uptrend.

Descending Triangle

Bearish. Falling resistance + flat support. Sellers keep pressuring lower until buyers at the floor are overwhelmed. Trigger: close below support.

Symmetrical Triangle

Neutral / breakout direction. Lower highs + higher lows compress price into an apex. Breakout direction usually matches the prior trend. Volume contracts inside, expands on the breakout.

Rectangle (Bullish)

Bullish in uptrend. Price oscillates between flat support and resistance for several weeks. The longer the box, the bigger the eventual move. Darvas-box style swing setup.

Universal trade rules for chart patterns

  1. Volume must expand on the breakout/breakdown bar — 1.5× the 20-day average minimum. Without volume, the move usually fails.
  2. Daily close confirms, not an intraday wick. Wait for the bar to close.
  3. Measured target = pattern's height added to (or subtracted from) the breakout point.
  4. Stop loss: just beyond the pattern's last opposing swing, sized so loss ≤ 1% of account.
  5. Throwback / pullback: ~50% of breakouts retest the broken level. The retest is often a better entry than the initial break.
  6. Reality check: Lo, Mamaysky & Wang (2000) tested every classical pattern on 30+ years of US data. Only Head & Shoulders, Double Tops/Bottoms, and Broadening Tops produced statistically significant excess returns. The edge comes from combining a pattern with a trend filter and disciplined risk management — never from any single pattern alone.

10. Swing trade setups

A swing trade is held a few days to a few weeks, aiming to capture one clean price swing. The four setups below are the bread and butter — each combines trend, level, and trigger.

1. Trend Pullback (best for beginners)

  • Trend filter: price above rising 50-EMA, weekly above 40-EMA.
  • Setup: wait for a 3-7 day pullback to the 20- or 50-EMA, ideally with RSI dipping toward 40.
  • Trigger: bullish candle (hammer, engulfing, inside-bar break) at the EMA.
  • Stop: 1× ATR below the trigger candle's low.
  • Target: recent swing high; trail with 2× ATR thereafter.

2. Consolidation Breakout

  • Trend filter: stock making a series of higher lows; ADX rising above 20.
  • Setup: price compresses for 5-15 days into a tight range (Bollinger squeeze).
  • Trigger: close above the range high on volume ≥ 1.5× average.
  • Stop: below the range midpoint or 1.5× ATR.
  • Target: range height projected from breakout. R:R should be ≥ 2:1.

3. Support Bounce / Mean Reversion

  • Trend filter: long-term uptrend (above 200-day) or stable range.
  • Setup: price returns to a prior major support, RSI < 30, optionally tagging the lower Bollinger Band.
  • Trigger: bullish reversal candle (hammer, morning star) at the level.
  • Stop: just below the support / 1× ATR.
  • Target: 20-EMA or middle Bollinger Band first; full mean = upper band.

4. 52-Week High Momentum (Minervini-style)

  • Trend filter: price within 5% of 52-week high; 50-EMA above 200-EMA; 200-EMA rising for ≥1 month.
  • Setup: tight 5-15 day VCP (Volatility Contraction Pattern) — pullbacks getting smaller and on lower volume.
  • Trigger: close above the contraction high on heavy volume.
  • Stop: ≤ 7% below entry, max 1% account risk.
  • Target: trail with 10-week MA. Let winners run.

Position sizing for swing trades

Use this formula every time:

Position size = (Account × Risk%) ÷ (Entry − Stop)

Example: $50,000 account, 1% risk = $500. Entry $100, stop $96 → risk per share = $4. Position = $500 / $4 = 125 shares. Total $ exposure = $12,500.

11. Multi-timeframe routine

  1. Weekly — direction. Above 40-week EMA? Bullish bias only. Otherwise no long.
  2. Daily — setup. Pattern, level, indicator alignment, trigger candle.
  3. Hourly — entry. Confirmation candle + volume + exact stop-loss level.

Pre-trade checklist

  1. What is the higher-timeframe trend (weekly above 40-EMA)?
  2. Is the setup at a logical level (S/R, MA, Fib, pivot)?
  3. Does volume confirm the move?
  4. Where exactly is my invalidation (stop)? Use 1.5–3× ATR.
  5. Position size so loss ≤ 1% of account.
  6. Where is my target? Reward must be ≥ 2× risk.
  7. Have I written the trade in my journal before entering?

Reality check: academic studies (Lo et al., Bessembinder, Damodaran) find that most charting patterns generate only marginal excess returns after costs. The edge comes from combining a pattern with a trend filter (above 200-day), a volume confirmation, and disciplined position sizing — not from any single indicator.

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