Technical analysis is the study of price and volume data to forecast future price movements. It doesn't care why a company's earnings beat, what the CEO said, or what interest rates are doing. It asks one question: what is the chart telling you? Millions of traders and algorithms use technical analysis — which makes the patterns self-fulfilling at key levels where enough people are watching the same thing.
Support is a price level where buying tends to emerge and downward moves pause or reverse. Resistance is a level where selling tends to emerge and upward moves stall. These levels form because of human memory — traders who bought near a level and watched it fall will sell to break even when price returns. The more times a level has been tested and held, the more significant it is.
A key principle: broken resistance becomes support. Once price breaks through a resistance level convincingly, that old ceiling becomes a new floor — buyers who missed the breakout step in to buy the "dip back to support."
A moving average (MA) smooths price data over a set period — the 50-day MA is the average of the last 50 closing prices, updated daily. It removes day-to-day noise and reveals the underlying trend. The most watched: 20-day (short-term), 50-day (medium-term), 200-day (long-term trend).
When price is above the 200-day MA, the long-term trend is up — bulls are in control. Below it, bears. The 200-day MA often acts as dynamic support in uptrends and resistance in downtrends.
RSI measures the speed and magnitude of recent price changes, oscillating between 0 and 100. Above 70 = overbought (may be due for a pullback). Below 30 = oversold (may be due for a bounce). RSI is most useful for spotting divergence: price making a new high while RSI makes a lower high signals weakening momentum — a bearish warning.
The most common mistake: treating overbought/oversold as automatic sell/buy signals. A stock can stay overbought for months in a strong uptrend — selling every time RSI hits 70 in a bull market is expensive. RSI is most useful as a divergence signal and as context — confirming other signals, not generating them alone.
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