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Technical analysis is the study of historical price movements and trading volume to forecast future market behaviour. Unlike fundamental analysis, which looks at a company's financials and economic factors, technical analysis focuses purely on what the charts are telling you. It's one of the most widely used approaches by active traders worldwide.
Whether you trade the FTSE 100, individual UK shares, or global markets, understanding the basics of technical analysis can give you a significant edge in timing your entries and exits.
What Are Chart Types?
The foundation of technical analysis is the price chart. The three most common types are:
- Line charts — Simple plots connecting closing prices over time. Good for seeing the overall trend at a glance.
- Bar charts (OHLC) — Show the Open, High, Low, and Close for each period. More detail than line charts.
- Candlestick charts — Similar information to bar charts but with coloured bodies that make it easier to spot patterns. The most popular chart type among traders.
Support and Resistance
Support and resistance are key concepts in technical analysis. Support is a price level where buying pressure tends to prevent further decline — think of it as a floor. Resistance is where selling pressure prevents further advance — a ceiling. Identifying these levels helps traders make decisions about where to enter and exit trades.
Moving Averages
Moving averages smooth out price data to reveal the underlying trend. The two most common types are:
- Simple Moving Average (SMA) — The average closing price over a set number of periods
- Exponential Moving Average (EMA) — Gives more weight to recent prices, making it more responsive to new information
Popular periods include the 20-day (short-term trend), 50-day (medium-term), and 200-day (long-term trend) moving averages.
Common Technical Indicators
Beyond price and moving averages, traders use various indicators to confirm signals:
- RSI (Relative Strength Index) — Measures whether a stock is overbought or oversold
- MACD (Moving Average Convergence Divergence) — Shows momentum and trend direction
- Bollinger Bands — Measure volatility and potential price breakouts
- Volume — Confirms the strength behind price movements
Getting Started
The best way to learn technical analysis is to practice. Open a charting platform, start identifying support and resistance levels, and watch how price reacts. Our Charting Software page has tools to get you started, and the ChartsView Forum is a great place to discuss chart patterns with experienced traders.