Technical analysis is a huge part of day trading, swing trading, and even long-term investing. Most traders use technical analysis as their main strategy to determine when to buy or sell their positions. I put together this simplified guide to trading and investing with some technical analysis basics to allow beginners to be able to better understand their charts.

Technical Analysis: An analysis type used to forecast the direction of prices based on past market data, trends, and patterns. Technical analysis includes the use of charts, candlesticks, chart indicators/studies (VWAP, RSI, Bollinger Bands, etc.), volume, level 2, time and sales, and more.

Technical analysis differs from fundamental analysis, because fundamental analysis refers to the use of a company's financials in order to forecast the stock’s future price movement.

Support: A price level where a stock historically has a difficult time falling below due to stronger buying (demand) than selling (supply) at that price.

Support can many times offer a great opportunity to buy or cover a short position, because we can often expect a price rise from a major level of support.

Resistance: A price level where a stock historically has a difficult time breaking above due to stronger selling (supply) than buying (demand).

Resistance can many times offer a great opportunity to sell a position or open a short position, because we can often expect the price to decline from a major level of resistance.

Note: Broken Support can become resistance and broken resistance can become support. For that reason, it’s important to keep track of major support and resistance levels, even if the stock recently broken through them.



Support and resistance are the simplest chart “patterns” or formations that we see while doing technical analysis. However, it’s crucial to fully understand them because most of the other more complicated patterns all stem from basic support and resistance.



For example, the head and shoulders pattern is a commonly used pattern for many traders and is usually formed at the top of an uptrend/spike and indicates a reversal to the downside. At its simplest, it’s made up of one line of support and one line of resistance.

The way many traders use the head is shoulders pattern is to use the “right shoulder” resistance to sell or short sell, or they wait for a breakdown below support once both shoulders and the head are formed on the chart. This breakdown would confirm the head and shoulders pattern and is often the beginning of a larger move down, or even a downtrend.

A downtrend occurs when a stock is making both lower highs and lower lows on its chart. Downtrending stocks are considered bearish and should generally not be bought into. You should never try to fight a stock’s trend.

In a downtrend, you can draw your trendline resistance by simply connecting the highs on the chart. This trendline resistance is essentially just a slanted line of resistance.

Now, of course, on the other side of the spectrum there are also uptrends. A stock in an uptrend is making both higher highs and higher lows on its chart. These stocks are considered bullish and should generally not be short sold, which would be fighting the uptrend.

In an uptrend, you can draw your trendline support by simply connecting the lows on the chart. This trendline support is essentially just a slanted line of support.

Trendlines, just like support and resistance, also make up many commonly used chart patterns. For example, the bull flag pattern is made up one level of trendline support and one level of trendline resistance.

This pattern is considered a bullish continuation pattern, which means it usually forms after a strong move up and can indicate the stock is likely to continue higher once the pattern is completely formed.

So as you can see, these simple lines of support and resistance, whether they be perfectly horizontal or slanted in either direction (trendlines) can create some very useful chart patterns and allow you to look at you charts a little bit differently.

At the end of the day, there’s no need to overcomplicate your technical analysis. Trading and investing based on simple levels of support and resistance can go a long way if you remain disciplined and put your emotions aside. Trade your stocks based on your analysis and strategy and not based on greed, fear, or hope!

These emotions can cause even the best analysts to trade or invest poorly and are ultimately the cause of failure in those that never reach consistent profitability. Think about it, there’s a reason computer algorithms are so commonly used in today’s markets. Aside from their lightning speed, they’re also able to take the human emotion out of the trading and execute trades based solely on analysis and strategy.

If you learn how to analyze charts like a pro and are able to suppress your emotions while trading, kind of like computer algorithms, you’re well on your way to achieve your trading or investing goals in the market. Good luck!

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