A Complete Guide
To Technical Analysis

Price action refers to how an asset’s price moves over time. Since financial markets are driven by human emotions (fear, greed, and speculation), certain price patterns tend to repeat. 

Traders use price action to gauge market sentiment, looking for signals that indicate whether buyers (bulls) or sellers (bears) are in control. 

Candlestick formations, chart patterns, and breakout levels all stem from the psychology behind price movements.

One of the core beliefs of technical analysis is that past price movements can provide insight into future price behavior. 

Markets often move in cycles, and price patterns that have led to profitable trades in the past may repeat. By analyzing historical price data, traders identify trends, patterns, and key levels that help them anticipate future moves. 

Unlike fundamental analysis, which focuses on financial statements and economic factors, technical analysis relies purely on price charts and market data.

Trends:

Markets move in trends, which can be classified as uptrends, downtrends, or sideways (range-bound) movements. 

Identifying trends allows traders to align their positions with the prevailing market direction, improving their probability of success.

Support: 

A support level is a price point where demand is strong enough to prevent further declines. When an asset reaches support, it often sees buying interest, leading to a potential price bounce. 

Traders use support levels to identify entry points for long (buy) positions.

Resistance: 

A resistance level is a price point where selling pressure prevents further price increases. When an asset approaches resistance, traders may look for signs of selling interest, indicating a potential reversal. Resistance levels are often used to determine exit points for long trades or entry points for short (sell) trades.

By mastering these core principles, traders can develop a structured approach to analyzing the markets and identifying high-probability trade setups.

What Are Market Trends?

A market trend is the general movement of an asset’s price, which can be classified into three main types:

• Uptrend: A series of higher highs and higher lows, indicating sustained buying pressure. Traders look for opportunities to buy during pullbacks in an uptrend.
• Downtrend: A series of lower highs and lower lows, signalling selling pressure. Traders may take short positions or wait for a trend reversal before entering long trades.
• Sideways trend: When the price moves within a defined range without a clear upward or downward direction. In this scenario, traders focus on support and resistance levels for trading opportunities.

Recognising these trends early helps traders align their strategies with the market’s momentum, increasing their chances of executing profitable trades.

Several technical indicators help traders analyse trends and confirm market direction. Among the most popular are:

1. Simple Moving Average (SMA)

The SMA calculates the average price over a specific period (e.g., 50-day or 200-day SMA). It helps traders identify long-term trends by filtering out short-term price noise.

• If the price is above the SMA, the market is generally in an uptrend.
• If the price is below the SMA, the market is likely in a downtrend.

2. Exponential Moving Average (EMA)

The EMA is similar to the SMA but places more emphasis on recent price data, making it more responsive to market movements. Traders often use:

• Short-term EMAs (e.g., 9-day or 21-day EMA) to capture quick trend shifts.
• Long-term EMAs (e.g., 50-day or 200-day EMA) to analyze major trends.

By combining moving averages with other trend analysis tools, traders can refine their strategies and improve their ability to follow the prevailing market direction.

Support and resistance levels are price zones where an asset historically struggles to move beyond. These levels develop due to shifts in market psychology, with traders reacting to past price movements.

Here’s how traders can identify strong support and resistance zones:

1. Observe Price Reversals

Support is a level where price repeatedly stops falling and bounces back up, indicating strong buying interest.

Resistance is a level where price struggles to rise further and begins to decline, suggesting selling pressure.

The more times a price level has been tested and held, the stronger the support or resistance becomes.

2. Use Psychological Price Levels

Round numbers, such as 100, 50, 10,000, often act as psychological support or resistance levels because traders naturally place stop-loss orders and profit targets around these figures.

Institutional traders and algorithms frequently use these levels as reference points, making them important areas to watch.


3. Combine Support and Resistance Zones with Technical Indicators

Another way to identify a strong support or resistance zone is to accompany these levels with technical indicators. 

• Moving Averages (SMA, EMA): When moving averages align with historical support or resistance, they reinforce those levels. For example, the 200-day moving average often acts as strong support or resistance in long-term trends.
• Fibonacci retracements: These levels (e.g., 38.2%, 50%, and 61.8%) highlight potential reversal points, often aligning with natural support and resistance.
• Trading volume: High trading volumes at specific price levels indicate strong support or resistance as buyers and sellers have historically been active there.

Technical analysis isn’t just about reading charts. It’s about applying strategies that help you make smarter, more calculated trading decisions. 

Below, we’ll dive into three popular strategies that traders use to navigate the markets: Trend Following, Breakout Trading, and Mean Reversion. 

Each strategy serves a unique purpose and understanding how to apply them can level up your trading game.

Trend Following Strategy

The Trend Following Strategy is one of the most widely used techniques in trading. The concept is simple: “The trend is your friend.” 

This strategy focuses on identifying an existing market trend- whether upward, downward, or sideways- and positioning trades in the direction of that trend.

Trend followers use tools like moving averages to spot trends. A common technique is to buy when the price is above a moving average and sell when it’s below. 

The key to success with this strategy is staying disciplined and allowing the trend to play out while managing risk.


Tools you’ll need: Moving averages (SMA, EMA), trendlines, and trend indicators (like the ADX).

Breakout Trading Strategy

Breakout trading revolves around identifying key levels of support and resistance. 

A breakout occurs when the price moves outside of these levels, signaling potential for a significant price movement. 

This strategy capitalizes on periods of market consolidation (when price moves within a narrow range), waiting for a price “breakout” to trigger new trends.

Traders will typically wait for the price to break above resistance (in an uptrend) or fall below support (in a downtrend). Once the breakout happens, they enter the trade, riding the momentum that follows.

Tools you’ll need: Support and resistance levels, chart patterns (like triangles or rectangles), and volatility indicators like Bollinger Bands.

Mean Reversion Strategy

The Mean Reversion Strategy is based on the principle that prices tend to move back to their average or mean over time. 

This strategy assumes that asset prices will revert to their historical average after moving too far in one direction, either overbought or oversold.

Traders using this strategy will buy when an asset is considered oversold (below its mean) and sell when it’s overbought (above its mean). The key here is identifying when an asset has deviated too far from its historical average, signaling a potential reversal.


Tools you’ll need: RSI (Relative Strength Index), Bollinger Bands, and moving averages.

Using News Events to Confirm Technical Setups

Economic Reports & Market Reactions

Key economic reports- such as GDP data, employment figures, and central bank interest rate decisions- can have a major impact on market sentiment. 

Traders who use technical analysis can enhance their strategies by checking how price action aligns with these fundamental events.

For example, if a stock is approaching a major support level and a positive earnings report is released, this could confirm a potential buying opportunity.

Geopolitical & Market Sentiment Shifts

News related to global events, political instability, or trade agreements can influence price action. 

Even if a technical setup looks promising, traders should assess whether fundamental factors support or contradict the trade idea.

For example, currency pair showing a bullish breakout could be invalidated if a central bank unexpectedly announces a rate hike, shifting market sentiment.

Avoid Trading Against Strong Economic Trends

Even the most well-defined technical setups can fail if they go against a dominant economic trend. 

Fundamentals, such as inflation rates, central bank policies, and interest rate changes, often dictate the overall direction of markets.

For example, if the U.S. Federal Reserve is aggressively raising interest rates, stocks may struggle to sustain a long-term uptrend despite technical buy signals.

Technical traders can improve their success rate by aligning trades with the prevailing economic climate. 

If fundamental factors suggest that an asset should be bullish, traders can prioritize buying opportunities instead of counter-trend trades.

By integrating technical and fundamental analysis, traders can build a well-rounded strategy that accounts for both price action and economic forces. 

At Plus Markets, we encourage traders to use technical tools for entry and exit decisions, while fundamental factors guide the broader market outlook. This approach helps traders avoid unnecessary risks and make more informed trading decisions.