Technical analysis
A vocabulary for reading price and volume. We define each tool — we do not tell you when to buy or sell.
What technical analysis is (and isn't)
Technical analysis is the study of historical price and volume to make probabilistic statements about future price behaviour. It is not a crystal ball, and no indicator works in isolation. Use it to frame what's happening on the chart, not to mechanically generate trades.
Candlesticks
Each candle summarises the open, high, low and close of one period. The body shows the open–close range; the wicks show the high and low. Green/hollow means close above open; red/filled means close below open. Common single-candle shapes:
- Doji — open ≈ close. Indecision.
- Hammer — small body near the top, long lower wick. Sellers tried lower, buyers pushed back.
- Shooting star — mirror of the hammer at the top of a move.
- Marubozu — body fills the whole range, no wicks. One side fully dominated.
Trend, support, resistance
A trend is the prevailing direction of price over a chosen timeframe — higher highs and higher lows for an uptrend, the reverse for a downtrend. Support is a price area where buyers have repeatedly stepped in; resistance is where sellers have repeatedly capped the move. Once broken decisively, support often becomes new resistance, and vice versa.
Moving averages
A moving average smooths price into a single line representing the average over the last N periods.
- Simple Moving Average (SMA) — arithmetic mean of the last N closes.
- Exponential Moving Average (EMA) — weights recent prices more, so it reacts faster.
- Common lookbacks in Indian commentary: 20 (short), 50 (intermediate), 200 (long).
RSI — Relative Strength Index
An oscillator scaled 0–100 comparing average gains to average losses over a lookback (default 14). Readings above 70 are conventionally called "overbought" and below 30 "oversold" — but in strong trends, RSI can stay extended for long stretches. Treat it as a context indicator, not a trigger.
MACD — Moving Average Convergence Divergence
MACD subtracts a longer EMA from a shorter EMA (typically 12 and 26) to produce the MACD line, then plots a "signal" line that is an EMA of MACD. The histogram is the gap between them. Crossovers and divergence between price and MACD are the two patterns analysts most often discuss.
Bollinger Bands
A 20-period SMA with bands two standard deviations above and below. The bands widen when volatility rises and contract when it falls. "Bollinger squeezes" — bands very close together — often precede expansions in range.
Volume
Price tells you what happened; volume tells you how convincingly. A breakout from resistance on heavy volume carries more weight than the same breakout on thin volume. In Indian equities, watch for the difference between delivery volume and intraday volume — both are reported by NSE/BSE.
Common patterns
- Double top / double bottom — two attempts at the same extreme that fail.
- Head and shoulders — three peaks, the middle one highest; the neckline is the focal level.
- Triangles — ascending, descending or symmetrical compressions of range that often resolve with a directional move.
- Flags & pennants — brief consolidations inside a larger trend.
A note on backtesting
If you start formulating rules ("RSI < 30 and price above 200 SMA"), test them on history before trading them. Even then, past performance is no guarantee — markets adapt, regimes change, and an indicator that worked beautifully in 2020 may struggle in 2024.