The Core Principle
Technical analysis is built on one idea: price reflects all available information. Instead of studying company earnings or economic data, technical traders study the charts — looking at what the market has actually done, not what it should theoretically do.
The assumption is that price patterns repeat because human behaviour repeats. Fear, greed, and herd mentality create recognisable structures in charts that experienced traders can identify and act on.
The Three Pillars
Technical analysis rests on three foundations:
- Trend — markets move in trends (up, down, or sideways). Identifying the trend direction is step one.
- Support and resistance — prices tend to bounce off certain levels repeatedly, creating decision points.
- Momentum — the speed and strength of price movement indicates whether a trend is gaining or losing energy.
Every technical indicator and chart pattern relates back to one or more of these pillars.
Charts and Timeframes
Price data is displayed on charts — typically candlestick charts, which show the open, high, low, and close for each time period. Timeframes range from 1-minute charts (used by scalpers) to monthly charts (used by long-term position traders).
Most active traders focus on the 1-hour to daily timeframes, using shorter timeframes to refine entries and longer timeframes to confirm the overall trend direction.
Technical vs Fundamental
Technical and fundamental analysis aren't mutually exclusive. Many successful traders use fundamentals to determine what to trade (which direction, which instruments) and technicals to determine when to enter and exit. The combination is often more effective than either approach alone.
Key Takeaways
- Technical analysis assumes price reflects all available information
- Built on three pillars: trend, support/resistance, and momentum
- Candlestick charts are the standard display format
- Timeframe selection depends on your trading style
- Combining technical and fundamental analysis often works best
