Technical analysis reads price and volume on a chart to gauge where a market might head next. It does not value a company the way fundamentals do; it studies the behavior of price itself. Two tools are enough to start: moving averages and the RSI.
What technical analysis is
The core belief is that price already reflects what participants know, and that patterns in price tend to repeat because human behavior does. It is a tool for framing probabilities, not a crystal ball. Fundamentals ask what a stock is worth, covered in the guide on PER and PBR; technical analysis asks what the crowd is doing right now.
A moving average smooths the price. When the short one crosses above the long one, many read it as a trend turning up.
Moving averages
A moving average plots the average price over a window, say 50 or 200 days, smoothing out the noise so the trend stands out. When a short average crosses above a long one it is called a golden cross and read as bullish; the reverse, a death cross, is read as bearish.
💡 Tip: Moving averages often act as dynamic support and resistance. Price dipping to the 200-day line and bouncing is a pattern traders watch closely.
RSI: momentum and extremes
The Relative Strength Index measures the speed of recent gains against losses on a 0 to 100 scale. It flags when a move has stretched too far in one direction.
RSI runs 0 to 100. Above 70 hints the move is stretched; below 30 hints it is beaten down. Extremes are clues, not signals.
| RSI reading | Common interpretation |
|---|---|
| Above 70 | Overbought, a pullback is possible |
| 30 to 70 | Neutral range |
| Below 30 | Oversold, a bounce is possible |
Combining signals
No single indicator is reliable alone. Traders look for confluence, where several tools agree, for example an oversold RSI right as price tests a long moving average. One reading in isolation produces false signals often.
⚠️ Caution: Indicators are built from past prices, so they lag, and they can stay overbought or oversold far longer than feels reasonable. Use them to manage risk, never as a promise.
What to watch
Technical signals read better next to sentiment and volatility. The Global Market Dashboard shows the VIX and the Fear & Greed Index, which help you see whether the crowd is fearful or greedy while you read the chart.
Further reading
The standard reference is John J. Murphy's Technical Analysis of the Financial Markets, a thorough and widely used introduction to charting.
This article is for informational purposes only and is not investment advice.