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Technical Analysis Mastery

Master advanced technical indicators, chart patterns, and momentum strategies used by professional traders to identify entry/exit points and market trends.

60 min read
30+ Indicators
Trading Strategies
Intermediate

Table of Contents

Moving Averages (MA)

Moving averages are the foundation of technical analysis. They smooth price data to identify trends and generate trading signals through crossovers.

1. Simple Moving Average (SMA)

SMA Formula
SMA = (P₁ + P₂ + P₃ + ... + Pₙ) / n
P:
Price (typically closing price)
n:
Number of periods (e.g., 20, 50, 200 days)

Live Example: Golden Cross Strategy (50-day MA vs 200-day MA)

How to Interpret This Chart

Signal Identification:

  • Golden Cross: When the blue line (50-day MA) crosses ABOVE the orange line (200-day MA) → BUY signal
  • Death Cross: When the blue line crosses BELOW the orange line → SELL signal
  • Price Above Both MAs: Strong uptrend confirmed
  • Price Below Both MAs: Strong downtrend, avoid buying

Actionable Strategy:

  • Wait for Golden Cross confirmation (min 3 days above)
  • Enter position when price pulls back to 50-day MA (support test)
  • Set stop-loss 2% below 200-day MA
  • Exit on Death Cross or 20% profit target
SMA Calculation Example (10-day)

Last 10 closing prices:

$150, $152, $148, $151, $154, $156, $153, $157, $159, $160

SMA₁₀ = (150 + 152 + 148 + 151 + 154 + 156 + 153 + 157 + 159 + 160) / 10
= 1540 / 10 = $154

The 10-day SMA is $154. If current price ($160) > SMA ($154), it signals an uptrend.

MA Period Type Use Case Trader Profile
9-day EMA Short-term Day trading, scalping Active traders
20-day SMA Medium-term Swing trading Swing traders
50-day SMA Intermediate Trend confirmation Position traders
200-day SMA Long-term Bull/bear market definition Institutional investors

Relative Strength Index (RSI)

RSI is a momentum oscillator that measures the speed and magnitude of price changes. It identifies overbought and oversold conditions.

RSI Formula
RSI = 100 - [100 / (1 + RS)]

RS (Relative Strength) = Average Gain / Average Loss
Average Gain:
Average of n-period gains (typically 14 days)
Average Loss:
Average of n-period losses
Range:
0 to 100 (70+ = overbought, 30- = oversold)

Live Example: RSI Overbought/Oversold Zones (14-period)

How to Interpret RSI Chart

Zone Identification:

  • RSI > 70 (Red Zone): Overbought → Potential selling opportunity or reversal down
  • RSI < 30 (Green Zone): Oversold → Potential buying opportunity or reversal up
  • RSI 40-60: Neutral zone, no clear signal

Trading Signals:

  • Buy: RSI crosses above 30 (exits oversold zone with momentum)
  • Sell: RSI crosses below 70 (exits overbought zone)
  • Divergence (Advanced): Price makes new high but RSI doesn't → Bearish reversal coming

⚠ Warning: In strong trends, RSI can stay overbought/oversold for weeks. Always combine with trend indicators (MA)!

RSI Trading Strategies

1. Overbought/Oversold Strategy:

  • Buy Signal: RSI crosses above 30 (oversold recovery)
  • Sell Signal: RSI crosses below 70 (overbought correction)

2. Divergence Strategy:

  • Bullish Divergence: Price makes lower low, RSI makes higher low → Reversal up
  • Bearish Divergence: Price makes higher high, RSI makes lower high → Reversal down

3. Centerline Crossover:

  • RSI crosses above 50 → Bullish momentum
  • RSI crosses below 50 → Bearish momentum

Moving Average Convergence Divergence (MACD)

MACD is a trend-following momentum indicator that shows the relationship between two moving averages. It's one of the most reliable technical tools.

MACD Components
MACD Line = 12-period EMA - 26-period EMA

Signal Line = 9-period EMA of MACD Line

Histogram = MACD Line - Signal Line

Live Example: MACD Crossover Strategy

How to Read MACD Chart

Signal Identification:

  • Bullish Crossover: MACD line (blue) crosses ABOVE signal line (orange) → BUY signal
  • Bearish Crossover: MACD line crosses BELOW signal line → SELL signal
  • Histogram Bars: Green bars = bullish momentum | Red bars = bearish momentum
  • Zero Line: MACD above zero = uptrend | below zero = downtrend

Advanced Strategy:

  • Strong Buy: MACD crosses above signal line + histogram turns green + MACD crosses above zero line
  • Confirmation: Wait for 2-3 days of green histogram expansion
  • Exit: When MACD crosses below signal line OR histogram shrinks significantly

Win Rate: ~65% on trending stocks when combined with volume confirmation

MACD Trading Signals

1. MACD Crossover (Most Common Signal):

  • Bullish Signal: MACD line crosses ABOVE signal line
  • Bearish Signal: MACD line crosses BELOW signal line

2. Zero Line Crossover:

  • Buy: MACD crosses above zero (uptrend confirmation)
  • Sell: MACD crosses below zero (downtrend confirmation)

3. Divergence:

  • Bullish: Price falling, MACD rising → Potential reversal up
  • Bearish: Price rising, MACD falling → Potential reversal down

Bollinger Bands

Bollinger Bands measure volatility and identify extreme price levels. Created by John Bollinger in the 1980s, they adapt dynamically to market conditions.

Bollinger Bands Formula
Middle Band = 20-period SMA

Upper Band = Middle Band + (2 × Standard Deviation)

Lower Band = Middle Band - (2 × Standard Deviation)
Standard Deviation:
Measures volatility over 20 periods
2σ Coverage:
95% of price action occurs within the bands (statistically)

Live Example: Bollinger Bands with Squeeze Pattern

How to Trade Bollinger Bands

Key Signals:

  • Touch Upper Band: Price overbought → Potential sell or take profit
  • Touch Lower Band: Price oversold → Potential buy opportunity
  • Squeeze (Bands Narrow): Low volatility → Explosive move coming soon (10-30% in 2-4 weeks)
  • Breakout Above Upper Band: Strong momentum → Continue trend (don't sell immediately)

Bollinger Squeeze Strategy:

  1. Identify when bands narrow to 6-month low (squeeze formation)
  2. Wait for breakout (price crosses upper or lower band)
  3. Confirm with 2x average volume spike
  4. Enter in breakout direction with stop-loss at middle band
  5. Target: Bandwidth distance projected from breakout point

⚠ Warning: Don't blindly sell at upper band in strong uptrends! Combine with RSI/MACD for confirmation.

Bollinger Squeeze Strategy

A Bollinger Squeeze occurs when bands narrow dramatically (low volatility). This precedes explosive moves.

How to Identify:

  • Bandwidth (Upper - Lower) reaches 6-month low
  • Bands are parallel and flat
  • Volume is declining

Trade Setup:

  • Wait for price to break above Upper Band (bullish) or below Lower Band (bearish)
  • Confirm with increased volume (2x average)
  • Enter in direction of breakout

Expected Move: 10-30% price move within 2-4 weeks after squeeze

Fibonacci Retracements

Fibonacci retracements identify potential support and resistance levels based on the mathematical Fibonacci sequence. Widely used by institutional traders.

Key Fibonacci Levels
23.6%, 38.2%, 50.0%, 61.8%, 78.6%
Golden Ratio (61.8%):
Most important level, often acts as strong support/resistance
Application:
Draw from swing low to swing high (uptrend) or high to low (downtrend)

Live Example: Fibonacci Retracement Levels After Rally

How to Use Fibonacci Retracements

Level Interpretation:

  • 23.6% (Pink): Shallow pullback → Very strong trend continuation
  • 38.2% (Blue): Moderate pullback → Good entry for trend continuation
  • 50.0% (Purple): Psychological level → Common reversal point
  • 61.8% (Orange - Golden Ratio): Strongest support → Prime buying zone if trend is valid
  • 78.6% (Red): Deep retracement → Trend weakening, risky entry

Trading Strategy:

  1. Identify strong trend (swing low to swing high)
  2. Wait for price to retrace to 50-61.8% level
  3. Look for bullish reversal pattern (e.g., hammer candlestick, RSI oversold)
  4. Enter long with stop-loss below 78.6% level
  5. Target: Original swing high + Fibonacci extension (127.2% or 161.8%)

💎 Pro Tip: The 61.8% Golden Ratio is where institutions often accumulate. Combine with volume spike for confirmation!

Level Percentage Price Interpretation
0% 0.0% $150 Swing high (no retracement)
23.6% 23.6% $138.20 Shallow pullback
38.2% 38.2% $130.90 Moderate support
50.0% 50.0% $125.00 Psychological level
61.8% 61.8% $119.10 Golden ratio (strongest support)
78.6% 78.6% $110.70 Deep retracement
100% 100.0% $100 Full retracement (trend failure)

Volume Analysis

"Volume precedes price" – This Wall Street adage reflects the importance of volume in confirming trends and spotting reversals.

Live Example: Price + Volume + OBV Analysis

How to Read Volume & OBV

Volume Interpretation (Green/Red Bars):

  • Rising Price + High Green Volume: Healthy buying pressure → Trend is strong
  • Rising Price + Low Volume: Weak rally → Likely to reverse (distribution phase)
  • Falling Price + High Red Volume: Panic selling → Potential capitulation bottom near
  • Falling Price + Low Volume: Weak selling → Bottom forming, accumulation zone

OBV Divergence Signals (Purple Line):

  • Bullish Divergence: Price makes lower low BUT OBV makes higher low → Smart money accumulating, reversal up likely
  • Bearish Divergence: Price makes higher high BUT OBV makes lower high → Institutions distributing, reversal down likely
  • OBV Trending Up: Confirms uptrend strength
  • OBV Trending Down: Warns of weakness even if price stable

🎯 Pro Strategy: Only enter trades when price direction matches OBV direction. Divergences are early warning signals!

Volume Interpretation Rules
  • Rising price + Rising volume: Healthy uptrend (strong buying)
  • Rising price + Falling volume: Weak uptrend (likely reversal)
  • Falling price + Rising volume: Strong downtrend (panic selling)
  • Falling price + Falling volume: Weak downtrend (potential bottom)

Classic Chart Patterns

Chart patterns are visual representations of market psychology. They've worked for decades because human behavior is predictable.

Live Example: Head & Shoulders Reversal Pattern

How to Trade Head & Shoulders Pattern

Pattern Identification:

  1. Left Shoulder: Rally to resistance, pullback to support (orange line = neckline)
  2. Head: Higher rally, pullback to neckline again
  3. Right Shoulder: Weaker rally (lower than head), pullback toward neckline

Trading Setup:

  • Entry: Break below neckline (orange) with volume >2x average → SELL/SHORT signal
  • Stop Loss: Above right shoulder peak (protect if pattern fails)
  • Target: Neckline - Head height = Projected downside move
  • Confirmation: Price stays below neckline for 2-3 days (avoid false breakouts)

📊 Pattern Stats:

  • Reliability: 85%+ success rate when confirmed
  • Avg Move: 10-15% decline from neckline break
  • Time Frame: Pattern takes 3-6 months to form (longer = more reliable)

Live Example: Bull Flag Continuation Pattern

How to Trade Bull Flag Pattern

Pattern Structure:

  • Flagpole: Sharp 20-40% rally in 1-3 days (strong momentum)
  • Flag: Tight 5-15% consolidation for 5-15 days (profit-taking, healthy pullback)
  • Trend Lines: Parallel support/resistance within flag (yellow lines)

Entry Strategy:

  1. Identify sharp rally + tight consolidation
  2. Wait for breakout above flag resistance (upper yellow line)
  3. Confirm with volume spike (>2x average)
  4. Entry: Buy on breakout bar close above resistance
  5. Stop Loss: Below flag support (lower yellow line) ~5-8%
  6. Target: Flagpole height added to breakout point (~20-40% upside)

🏆 Success Metrics:

  • Win Rate: 68% (Bulkowski's Encyclopedia of Chart Patterns)
  • Avg Gain: 25-35% from breakout to target
  • Best Market: Strong trending markets (bull markets)

Continuation Patterns

Pattern Description Breakout Direction Target
Bull Flag Sharp rally + tight consolidation downward Upward (continuation) Height of flagpole
Bear Flag Sharp drop + tight consolidation upward Downward (continuation) Height of flagpole
Triangle Converging trendlines (symmetrical) Direction of prevailing trend Triangle height

Reversal Patterns

Pattern Description Signal Reliability
Head & Shoulders Three peaks (middle highest) Bearish reversal 85%+
Inverse H&S Three troughs (middle lowest) Bullish reversal 85%+
Double Top Two peaks at same level Bearish reversal 70%
Double Bottom Two troughs at same level Bullish reversal 70%