Learn to read charts, identify patterns, and use indicators to make informed trading decisions in forex and CFD markets.
Technical analysis is the study of historical price data and trading volume to forecast future price movements. Unlike fundamental analysis, which examines economic data and company financials, technical analysis focuses exclusively on what the chart is telling you.
The core premise is that all known information is already reflected in the price, and that price movements tend to follow identifiable patterns that repeat over time due to consistent human behaviour in markets.
Technical analysis is the primary tool for most short-term and medium-term forex and CFD traders. Even long-term position traders use technical analysis to time their entries and exits more effectively.
All available information — economic data, market sentiment, political events — is already priced into the market. The chart reflects the collective decisions of all market participants.
Markets tend to move in sustained directions (up, down, or sideways). Once a trend is established, it is more likely to continue than reverse, until the weight of evidence shows otherwise.
Chart patterns and price behaviours tend to recur because human psychology — fear, greed, hope — remains constant across time. Recognising these patterns gives traders an edge.
Different ways to visualise price data, each offering unique insights.
The most popular chart type among traders. Each candle shows the open, high, low, and close for a time period. The body colour indicates whether the period closed higher (bullish) or lower (bearish) than it opened. Candlestick patterns like doji, hammer, and engulfing provide powerful trading signals.
A simple chart connecting closing prices with a continuous line. Line charts filter out intra-period noise and are useful for quickly identifying the overall trend direction and key support/resistance zones at a glance.
Similar to candlesticks, bar charts display the open, high, low, and close using horizontal ticks on a vertical line. They provide the same information as candlesticks but in a different visual format preferred by some traditional traders.
Tools that help confirm trends, measure momentum, and identify potential reversal points.
Moving averages smooth out price data to reveal the underlying trend. The 50-period and 200-period moving averages are widely followed. A crossover of the 50 above the 200 (golden cross) signals a potential bullish trend, while the opposite (death cross) signals bearish momentum.
An oscillator that measures the speed and magnitude of recent price changes on a scale of 0 to 100. Readings above 70 suggest overbought conditions, while readings below 30 suggest oversold. Divergences between RSI and price often precede reversals.
The Moving Average Convergence Divergence combines trend and momentum analysis. It consists of the MACD line, signal line, and histogram. Crossovers of these lines generate buy and sell signals, while the histogram shows the strength of the current trend.
A volatility indicator consisting of a middle moving average band with upper and lower bands set at standard deviations. Bands widen during high volatility and narrow during calm periods. Price touching or piercing the outer bands can signal potential reversal points.
Based on the Fibonacci sequence, these horizontal lines indicate potential support and resistance levels where price may reverse during a pullback. The key levels are 23.6%, 38.2%, 50%, 61.8%, and 78.6%. The 61.8% level is often called the golden ratio.
Compares a closing price to its price range over a given period. Like RSI, it identifies overbought and oversold conditions. The %K and %D line crossovers within extreme zones generate trading signals, especially effective in range-bound markets.
Recognisable formations that signal potential trend continuations or reversals.
Support and resistance are the foundation of technical analysis. Support is a price level where buying pressure has historically prevented further decline. Resistance is a level where selling pressure has prevented further advance.
These levels are not exact prices but zones where price is likely to react. The more times a level has been tested and held, the stronger it is considered. When support breaks, it often becomes resistance, and vice versa — a concept known as polarity.
Traders use support and resistance to plan entries, set stop-losses, and identify profit targets. Combining these levels with other tools like volume analysis and candlestick patterns creates higher-probability trading setups.