Technical Analysis Glossary
Price charts, momentum indicators, trading patterns, and market timing tools. 40 terms.
How to read this section
Technical analysis studies price and volume patterns to time short-term trades. It is a fundamentally different discipline from the cash-flow and fundamentals-based analysis that drives the rest of this site. Rigorous academic evidence for its profitability is mixed at best and has weakened as markets became more efficient: many rules that worked in earlier decades stopped working once tested out of sample and net of costs. Treat these tools as probabilistic, regime-dependent, and speculative. They are short-term trading aids, not a basis for long-term investing, and past pattern behaviour is not a reliable guide to future results. Nothing here is investment advice.
Evidence badges
Instead of a fabricated per-indicator success rate, each term carries an honest badge for how strong the peer-reviewed evidence is. Hover or focus a badge to read the note and open the underlying study.
- Academically supported
- Mixed / decayed evidence
- Weak statistical signal
- No robust evidence
On the sources we link: we cite both foundational studies and more recent work so you can read the evidence yourself. Citing a paper is not an endorsement of trading on it. The academic record on technical analysis is mixed, edges tend to decay once published, and this material is provided for information only, not as investment advice.
A
ATR (Average True Range)
A volatility measure that captures the average magnitude of price movement over a period, typically 14 days. Calculated from the largest of: current high minus current low, current high minus previous close, or previous close minus current low. Higher ATR indicates greater price swings; lower ATR suggests tighter trading ranges.
🔍 Investor Lens
Use ATR to set stop-loss distances and position sizing: wider ATR means you need wider stops. It helps identify whether a stock is in a calm or volatile phase. Watch ATR expand before breakouts, as rising volatility often precedes directional moves. Avoid trading high-ATR stocks with tight stops, as you will get shaken out by normal noise.
💡 Example
ATR is like measuring how much a ball bounces on different surfaces. A ball on concrete bounces high and far (high ATR); the same ball on carpet barely bounces (low ATR). If the ball starts bouncing wildly higher, something has changed the surface or the throw force.
B
Bollinger Bands
A technical indicator consisting of a simple moving average (typically 20-day) with upper and lower bands placed two standard deviations above and below it. The bands widen when volatility increases and narrow when it decreases, creating a dynamic range around price. Price bouncing between the bands often suggests mean reversion; breaks outside suggest trend continuation.
🔍 Investor Lens
Use Bollinger Bands to spot overbought and oversold conditions: when price touches the upper band, the stock may be extended; at the lower band, it may be overdone. Watch for the squeeze when bands narrow, signalling low volatility before a likely breakout. Avoid purely mechanical trading at the bands without other confirmation, as strong trends can persist at the extremes.
💡 Example
Bollinger Bands are like a rubber band around a moving object. When the object moves steadily, the band stays loose. When movement becomes jerky and erratic, the band stretches wider. A very tight band suggests the object is about to accelerate.
Breakout
A price movement that violates a previously established support or resistance level with increased volume, signalling the start of a new trend. Can be bullish (price breaks above resistance) or bearish (price breaks below support). Genuine breakouts typically occur on elevated volume; low-volume breaks are often false and reverse quickly.
🔍 Investor Lens
Breakouts are classic entry signals: buy when price closes above a defined resistance level on high volume, or sell when it breaks below support. Set your stop just outside the level that was broken to protect against whipsaws. False breakouts happen frequently, so wait for volume confirmation and consider trading the retest rather than the initial break.
💡 Example
A breakout is like a logjam breaking. Logs are stuck at a barrier, applying pressure. When pressure exceeds the barrier's strength, the logs suddenly rush through. The rush only matters if many logs move at once.
C
Candlestick Pattern
A price chart representation where each candle shows the open, high, low, and close for a period. The body shows open to close; wicks show the high and low. Patterns of multiple candles such as doji, hammer, and engulfing signal potential reversals, continuations, or indecision.
🔍 Investor Lens
Learn foundational patterns like hammer (potential reversal), engulfing (momentum shift), and doji (indecision). Use them as confluence signals with support and resistance or trend lines, not standalone trades. A bullish hammer at support is more reliable than a hammer in the middle of an uptrend. Practise pattern recognition on your watchlist before risking capital on pattern-only signals.
💡 Example
A candlestick pattern is like reading a journal entry. The date tells you when events happened. The body shows the overall mood; the wicks show the emotional extremes reached that day. A series of entries reveals a story of changing sentiment.
Consolidation
A period in which price trades within a defined range, with neither buyers nor sellers clearly in control. Characterised by lower volatility, tighter band width, and sideways price action. Consolidations often precede breakouts and can last from days to months; longer consolidations often lead to larger subsequent moves.
🔍 Investor Lens
Consolidation ranges offer low-risk trade setups: buy near the bottom, sell near the top of the range. Watch for range breakouts to catch the next directional move early. If you are holding through consolidation, resist the temptation to overtrade; the real move comes after breakout. Patience through consolidation often leads to the best risk and reward trades.
💡 Example
Consolidation is like a river widening and slowing before a waterfall. Water spreads out across a wide, shallow area, then eventually finds its way over the edge. The longer the flat section, the more energy builds before the drop.
Contrarian Investing
An approach that deliberately buys assets the market has beaten down and avoids or sells the crowd's favourites, on the view that extreme past performance tends to reverse (overreaction). Over long horizons, portfolios of prior multi-year losers have historically outperformed portfolios of prior winners. It overlaps closely with value investing.
🔍 Investor Lens
Contrarian investing means buying what is unloved and unfashionable, which is psychologically hard and can stay painful for a long time before it works, if it works. The evidence is for broad, diversified, multi-year bets, not for catching a single falling knife. The key skill is telling a cheap, temporarily hated business apart from one that is cheap because it is genuinely deteriorating.
💡 Example
Contrarian investing is like buying winter coats in summer when they are on clearance. Everyone wants them in December (high price) and nobody wants them in July (low price). The bet is that demand, and price, will swing back. But some coats are on clearance because they are out of style for good, not just out of season.
Cup and Handle
A bullish chart pattern resembling a teacup, with a rounded bottom (cup) followed by a small downward retracement (handle). The pattern typically resolves when price breaks above the previous high of the cup. High success rate when the cup forms over three or more months and the handle is shallow (20-30% of cup depth).
🔍 Investor Lens
Cup and handle is a classic base-building pattern before rallies. Wait for price to break above the cup rim with volume confirmation before entering. Place your stop just below the handle low. This pattern often precedes substantial moves; even a partial breakout can offer good risk and reward. Avoid trading immature cups; the pattern needs several months to be reliable.
💡 Example
A cup and handle is like a tea drinker's journey. They sip from the cup (bottom), then pause briefly (handle) to decide if they will take another drink. The pause over, they confidently sip again (breakout upward).
D
Death Cross
A bearish technical signal that occurs when a short-term moving average (typically 50-day) crosses below a longer-term moving average (typically 200-day). Often interpreted as a shift from bullish to bearish momentum. Most reliable on longer timeframes and confirms existing downtrends; less reliable in range-bound markets.
🔍 Investor Lens
A death cross is a tactical signal to reduce exposure or tighten stops; it is not a sell signal in isolation. Many traders use it as a filter: avoid long trades after a death cross; favour shorts or cash. Wait for price to break below key support levels before shorting solely on a death cross. False death crosses occur frequently in choppy markets.
💡 Example
A death cross is like a driver's rear-view mirror showing two road lines crossing. The near line (short-term) dips below the far line (long-term), signalling the car is shifting to a downward lane. But the crossing is only a moment; the lane matters more than the cross itself.
Divergence (Technical)
A discrepancy between price movement and an oscillator such as RSI or MACD, suggesting weakening trend strength or an impending reversal. Bullish divergence: price makes lower lows whilst the oscillator makes higher lows. Bearish divergence: price makes higher highs whilst the oscillator makes lower highs. Most reliable at extremes of the oscillator.
🔍 Investor Lens
Bullish divergence near support often precedes reversals and offers good risk and reward. Bearish divergence at resistance signals exhaustion before pullbacks. Use divergence as confirmation of support and resistance ideas, not standalone signals. Always check multiple timeframes; divergence on 5-minute charts is mostly noise.
💡 Example
Divergence is like a car climbing a hill that is getting steeper. The car keeps going higher (price higher), but the engine is losing horsepower (momentum weaker). Eventually the car stalls or slows sharply at the next crest.
Double Bottom
A bullish reversal pattern formed when price declines to a low, bounces, declines again to a similar low, then bounces decisively above the intermediate peak. The two lows are roughly equal; the intermediate peak is the neckline. Volume typically increases on the final bounce, confirming buying pressure.
🔍 Investor Lens
Double bottoms are reliable reversal patterns after clear downtrends. Buy when price closes above the neckline on volume. Place your stop just below the lowest low of the pattern. This pattern often leads to a measured move: the distance from neckline to the lowest low is the typical upside target.
💡 Example
A double bottom is like a ball dropped into a bowl twice. It rolls to the bottom once, bounces up, rolls back to the same depth, then bounces out strongly and away from the bowl.
Double Top
A bearish reversal pattern formed when price rises to a high, pulls back, rises again to a similar high, then breaks below the intermediate low (neckline). The two highs are roughly equal; increases in volume on the breakdown confirm selling pressure. Mirror image of a double bottom.
🔍 Investor Lens
Double tops at resistance levels often precede sharp declines. Sell or short when price closes below the neckline on volume. Place your stop just above the highest high of the pattern. The measured move target is the distance from the neckline to the highest high, projected downward. Double tops are particularly reliable after extended uptrends and at psychological levels.
💡 Example
A double top is like a person jumping to touch a ceiling twice. They jump and barely touch it, come back down, jump again to the same height, then tumble backward onto a lower shelf.
E
EMA (Exponential Moving Average)
A moving average that weights recent prices more heavily than older prices, responding faster to price changes than a simple moving average. Calculated by applying a multiplier to each price in the period. Commonly used periods are 12-day, 26-day, and 50-day for crossovers and trend identification.
🔍 Investor Lens
Use the 50-day EMA as a trend filter: price above the 50-day EMA suggests uptrend; below suggests downtrend. Shorter-term EMAs (12 and 26) are useful for identifying pullbacks within trends: price bouncing off the 12-day suggests support in an uptrend. EMA crossovers are entry signals, though they lag; confirm with price structure. EMAs work best in trending markets.
💡 Example
An EMA is like a weight-weighted average of recent conversations. Your boss remembers your last five meetings more vividly than meetings from six months ago. Recent meetings carry more weight in their memory, just as recent prices carry more weight in an EMA.
F
Fibonacci Retracement
Horizontal levels derived from Fibonacci ratios (23.6%, 38.2%, 61.8%, 78.6%) that measure the likely retracement distance during a pullback within a trend. Applied by marking a significant high and low, then plotting the ratios between them. Traders use these levels as potential support or resistance for trade entries and stops.
🔍 Investor Lens
Draw Fibonacci retracements from a clear trend low to high in an uptrend or high to low in a downtrend. The 38.2% and 61.8% levels are the most reliable for pullback targets. Use Fibonacci levels as confluence with other support and resistance; a level that aligns with a moving average or prior swing is stronger.
💡 Example
Fibonacci retracements are like a wave at the beach. A wave comes in a certain distance (the initial trend). As it pulls back, it does not fully retreat; it typically stops at certain proportions of its advance (38%, 62%). Knowing these proportions helps predict where the wave will pause before advancing again.
Flag Pattern
A continuation pattern formed by a sharp price move (flagpole) followed by a tight, angled consolidation (flag). Occurs on high volume into the flagpole, lower volume in the flag, then breakout on renewed volume. Bullish flags point slightly downward within an uptrend; bearish flags point slightly upward within a downtrend.
🔍 Investor Lens
Flags are among the most reliable continuation patterns. The flagpole defines the move's size; expect a similar-sized move after the flag breaks. Buy bullish flags that form in uptrends, near the upper edge of the flag, and exit bearish flags breaking downward. Place stops just outside the flag range. Flags typically form over 5-20 days; longer consolidations are less reliable.
💡 Example
A flag pattern is like a runner sprinting (flagpole), pausing briefly to catch their breath within a narrow band of movement (flag), then sprinting again with momentum resumed (continuation breakout).
G
Golden Cross
A bullish technical signal that occurs when a short-term moving average (typically 50-day) crosses above a longer-term moving average (typically 200-day). Signals a shift from bearish to bullish momentum. Most reliable on longer timeframes and when it occurs with the 200-day EMA already established as support.
🔍 Investor Lens
A golden cross often precedes sustained rallies and is a tactical signal to increase long exposure or build positions. Use it as a filter: favour long trades after a golden cross. However, do not buy purely on the cross; wait for price to hold above the 200-day and test it for support. In range-bound markets, golden crosses produce whipsaws.
💡 Example
A golden cross is like a runner's two shadows aligning as the sun moves. The short shadow (short-term momentum) finally catches up to and crosses the long shadow (longer-term trend), signalling the runner is turning and heading upward.
H
Head and Shoulders
A bearish reversal pattern with three peaks: a central peak (head) higher than two smaller peaks on either side (shoulders). The neckline connects the two troughs between peaks. Price breaks below the neckline on volume after the second shoulder forms. The inverse head and shoulders pattern is bullish.
🔍 Investor Lens
Head and shoulders patterns at resistance often signal major reversals. Sell or short when price closes below the neckline on volume; this is a high-confidence bearish setup. Place your stop just above the head. The measured move is typically the distance from the head to the neckline, projected downward. Inverse head and shoulders at support are equally reliable bullish reversals.
💡 Example
A head and shoulders pattern is like a landscape with three hills. The middle hill (head) is tallest; the two flanking hills (shoulders) are shorter and similar in height. Walking over the right shoulder, if you suddenly descend below the valley floor, the terrain has clearly shifted.
M
MACD (Moving Average Convergence Divergence)
A momentum oscillator consisting of a 12-day EMA minus a 26-day EMA (MACD line), plus a 9-day EMA of that difference (signal line), and a histogram showing the difference between the two. Generates signals when the MACD line crosses its signal line, and histogram bars change indicating direction changes.
🔍 Investor Lens
MACD crossovers (MACD above signal line) generate bullish signals; crossovers below generate bearish signals. Use the histogram expanding as trend confirmation and contracting as trend exhaustion. MACD divergence (price higher but MACD lower) signals weakening momentum before reversals. Avoid trading MACD crossovers alone; combine with price structure and support and resistance.
💡 Example
MACD is like tracking two runners at different speeds. The fast runner (12-day EMA) and slow runner (26-day EMA) sometimes run close together (convergence) and sometimes far apart (divergence). When they cross, direction is changing. The gap between them (histogram) shows how fast they are separating.
Momentum (Technical)
A measure of the rate of price change, calculated as the difference between the current price and the price from N periods ago (typically 10-14 periods). High momentum indicates a strong directional move; declining momentum suggests weakening trend even if price is still advancing. Often used interchangeably with velocity or rate of change.
🔍 Investor Lens
Use momentum oscillators to confirm trend strength. Momentum peaking at a new high suggests trend continuation; momentum failing to confirm a new price high signals exhaustion. Buy momentum breakouts, not extended moves where momentum has already peaked. Watch for momentum divergence to tighten stops or reduce position size before reversals.
💡 Example
Momentum is like a car's acceleration. Even if a car is still moving forward, if acceleration is slowing, it may coast to a stop soon. A car with high acceleration is building speed; one with declining acceleration is losing steam.
Moving Average
A rolling average of price over a set period (commonly 10, 20, 50, 100, 200 days). Simple moving averages weight all periods equally; exponential moving averages weight recent prices more heavily. Moving averages smooth price action, reveal trend direction, and act as dynamic support and resistance levels.
🔍 Investor Lens
Use the 50-day or 200-day moving average as a trend filter. Price above the moving average in an uptrend; below in a downtrend. Shorter moving averages (20-day) act as dynamic support in uptrends and resistance in downtrends. Pullbacks that touch but do not close below the moving average often bounce, offering low-risk long entries.
💡 Example
A moving average is like a car's speedometer smoothing out minor bumps to show the overall speed trend. Without smoothing, the needle jitters constantly; with smoothing, you see whether the car is accelerating, cruising, or decelerating.
O
OBV (On-Balance Volume)
A cumulative indicator that adds or subtracts daily volume based on price movement direction. When price closes higher, that day's volume is added; when lower, it is subtracted. OBV helps traders spot volume trends that may precede price changes.
🔍 Investor Lens
Watch OBV alongside price action to confirm strength of a move. Rising price with rising OBV signals genuine buying interest; price rising while OBV falls suggests weakening conviction. OBV divergence (price new high, OBV lower) is a warning sign of potential reversal.
💡 Example
Think of OBV like a water level gauge behind a dam. When price goes up and volume is heavy, the water level rises fast. If price rises but volume is light, the water level barely moves, suggesting the dam might not hold the gain.
Overbought
A state where an asset's price has risen sharply and momentum indicators suggest it may be unsustainably extended. Common technical measures include RSI above 70 or Stochastic above 80. Overbought does not predict reversal but signals caution and reduced margin of safety.
🔍 Investor Lens
Overbought conditions attract profit-taking and can trigger sharp pullbacks. Use overbought signals to tighten stops or reduce size, not as a sell signal alone. Overbought can persist in strong trends, so combine with support levels and volume to assess real reversal risk.
💡 Example
A balloon pumped too hard holds air under extreme pressure. When you pump more, it might burst, or it might just stay inflated longer. Overbought is when the pump is working hard but you should prepare for either outcome.
Oversold
A state where an asset's price has fallen sharply and momentum indicators suggest it may be unsustainably depressed. Common measures include RSI below 30 or Stochastic below 20. Oversold signals potential bounce but does not guarantee recovery.
🔍 Investor Lens
Oversold conditions can present entry opportunities but require other confirmation before buying. Watch for volume capitulation and support level holds before entering. Oversold bounces can be fast but temporary; use them to scale in rather than go all-in.
💡 Example
A spring compressed hard will rebound, but only if the mechanism is intact. If the mechanism is broken, pushing it down further may not produce a bounce at all.
P
Pairs Trading
A market-neutral strategy that trades two historically linked securities as a pair: when their price spread widens beyond its normal range, you go long the relative underperformer and short the relative outperformer, betting the spread reverts to its historical mean. Profit comes from convergence rather than market direction, so the combined position is roughly hedged against broad market moves.
🔍 Investor Lens
Pairs trading lets you bet on a relationship instead of a direction, which can pay off in flat or falling markets. In practice it is hard for individuals: you need two genuinely linked names, tight execution on both legs, and the discipline to cut a pair that keeps diverging. Treat any high win rate claim with caution, because the losses arrive when a spread you expected to converge blows out instead.
💡 Example
Imagine two coffee shops on the same street that usually have similar queues. One morning one has a huge line and the other is empty. Pairs trading is betting the lines will even out again: you buy the empty shop and sell the crowded one. You win if they converge, and lose if the crowded one just keeps getting more popular.
Pennant Pattern
A chart pattern formed by converging trendlines after a sharp price move, resembling a flag on a pole. The pennant apex points to a breakout zone. Pennants typically resolve within one to three weeks and signal continuation of the initial trend.
🔍 Investor Lens
Pennant patterns often break in the direction of the pole (prior move). Trade the breakout with a stop beyond the apex. Volume should spike on the breakout; if it does not, the pattern is unreliable.
💡 Example
A flag on a pole shows the wind was strong (the pole) and now weakened (the flag). The flag will soon settle, and when it does, the wind usually picks up in the same direction again.
Previous Day High / Low (PDH / PDL)
The highest and lowest traded prices of the prior regular trading session. Short-term traders mark the previous day's high (PDH) and low (PDL) as reference levels: they often act as near-term support and resistance, and a clean break beyond them is watched as either a continuation signal or a liquidity grab that traps breakout traders. Both levels reset at the start of each session.
🔍 Investor Lens
For a long-term investor these intraday lines carry almost no meaning; they matter to day and short-swing traders picking entries and stops. Part of their pull is self-fulfilling: so many traders watch the same obvious levels that price can react there simply because everyone expects it to. That shared attention is not the same as a dependable edge, and any specific 'price respects the PDH X percent of the time' figure you see quoted comes from marketing or a single backtest, not peer-reviewed evidence.
💡 Example
Think of yesterday's high and low as the ceiling and floor of the room everyone was trading in. Today, as price rises back toward the old ceiling, some traders sell expecting it to hold, while others jump in if it breaks cleanly through. The lines matter partly because everyone can see them, but a line everyone is watching is not a guarantee of what happens next.
Previous Month High / Low (PMH / PML)
The highest and lowest traded prices of the prior calendar month. Position and swing traders treat the previous month's high (PMH) and low (PML) as higher-timeframe support and resistance that frame the monthly range. Because they update only once a month, they are among the more widely-watched horizontal reference levels.
🔍 Investor Lens
Monthly reference levels are the most durable of this family and the closest a short-term charting level gets to something a longer-horizon trader might glance at. Still, they describe where price has been, not where it must go. Any claimed hit rate for a monthly-high or monthly-low break is not backed by peer-reviewed evidence.
💡 Example
The monthly high and low are like the record hottest and coldest days of last month. People remember them and glance back, and price often pauses there because others are watching too, but last month's extreme does not decide this month's weather.
Previous Week High / Low (PWH / PWL)
The highest and lowest traded prices of the prior calendar week. Swing traders use the previous week's high (PWH) and low (PWL) as larger-timeframe support and resistance than the daily levels: they frame the week's trading range and are watched for breakouts or failed breaks. They reset each week.
🔍 Investor Lens
Weekly reference levels matter to swing traders holding for days, not to long-term investors. Like the daily versions, their influence is partly a crowd effect: many traders anchor to the same weekly range. Treat a break of the PWH or PWL as information about where other traders may act, not as a signal with a reliable win rate.
💡 Example
If the daily high and low are one room's ceiling and floor, the weekly high and low are the whole building's roof and basement. Traders notice when price tests the roof or basement of the week, but noticing a level is not the same as knowing which way it breaks.
R
Relative Strength (Price-Based)
A comparison of one asset's price performance against another asset, index, or benchmark over a given period. Strong relative strength means an asset is outperforming; weak relative strength means it is lagging. Used to identify leadership within sectors and to build momentum portfolios.
🔍 Investor Lens
Buy stocks with rising relative strength versus their sector index; they tend to keep leading in bull markets. If a stock is falling even when its sector is rising, that weak relative strength is a red flag. Compare each holding's relative strength to the S&P 500 at least monthly to detect early deterioration.
💡 Example
If a runner completes 8 fast laps and 2 slow laps out of 10, their relative strength is strong. If the next session shows 5 fast and 5 slow, relative strength has declined even if average pace is identical.
Resistance Level
A price level where selling pressure historically accumulates, preventing the asset from rising further. Resistance forms at prior peaks, round numbers, or technical indicator levels. A breach of resistance often leads to a retest before further upside.
🔍 Investor Lens
Track key resistance levels as targets for profit-taking or position reduction. When price approaches resistance, consider tightening stops or scaling out. Failed resistance breaks are often followed by sharp reversals; use failed breaks as sell signals.
💡 Example
A ball thrown upward reaches a ceiling and bounces back down. The higher the ball rises, the harder it hits the ceiling on subsequent throws until someone raises the ceiling.
RSI (Relative Strength Index)
A momentum oscillator measuring the magnitude of recent gains against recent losses, scaled to 0-100. RSI above 70 signals overbought; RSI below 30 signals oversold. Calculated using a 14-period default window, it helps identify extremes and divergences.
🔍 Investor Lens
Use RSI to spot overbought (above 70) and oversold (below 30) extremes as caution zones, not trade signals. Watch for RSI divergence: price makes new high but RSI does not (bearish) or price makes new low but RSI does not (bullish). Combine RSI levels with support and resistance for confirmation.
💡 Example
RSI is like a heart rate monitor after exercise. A very high heart rate might indicate over-exertion and the need to slow down. A very low rate might indicate rest. But a fit athlete's baseline differs from an unfit person's baseline.
S
Short-Term Reversal
A short-horizon strategy that fades very recent moves: it buys the stocks that fell the most over the past week or month and sells those that rose the most, expecting a partial bounce-back. It is the short-horizon cousin of long-term contrarian investing, and is the opposite of momentum, which trades in the direction of intermediate-term moves.
🔍 Investor Lens
Short-term reversal is a high-turnover, professional-style strategy: the signal decays within days, so it demands cheap, fast execution that most individuals do not have. Even where the raw pattern exists, the bid-ask spread and trading costs eat most or all of the gross return. It is better understood as a market-microstructure effect than a reliable retail edge.
💡 Example
Short-term reversal is like a stretched rubber band snapping back. If a price is yanked far in one direction very quickly, it often springs part-way back. The catch is that the snap-back is small and fast, and by the time you have paid to grab both ends of the band, there may be nothing left.
SMA (Simple Moving Average)
The arithmetic mean of closing prices over a fixed period (such as 50-day or 200-day). The SMA smooths short-term noise and highlights underlying trend direction. Faster SMAs (shorter periods) respond quickly; slower SMAs (longer periods) provide stronger trend confirmation.
🔍 Investor Lens
Use SMA to identify and stay with trends. Buy above the 50-day SMA in an uptrend; sell below it in a downtrend. Crosses of faster SMA above slower SMA (golden cross) often signal trend strength. Plot multiple SMAs (20, 50, 200) to see the trend hierarchy.
💡 Example
An SMA is like averaging your weekly spending over a month. The longer the averaging window, the smoother the view of your true spending pattern and less distracted by a single expensive day.
Stochastic Oscillator
A momentum indicator comparing a closing price to its range (high-low) over a period, scaled 0-100. The %K line (raw stochastic) is smoothed into %D. Stochastic above 80 signals overbought; below 20 signals oversold. Divergence between price and stochastic highlights reversal risk.
🔍 Investor Lens
Use stochastic alongside RSI to confirm overbought and oversold extremes. Watch for stochastic divergence: price makes new high but stochastic does not. Stochastic crosses above 20 in an uptrend often mark bounces; crosses below 80 in a downtrend often mark rallies. Combine with support and resistance.
💡 Example
The stochastic tells you where today's price sits within recent extremes. If a stock's 14-day high was 100 and low was 90, and it closed at 95, the stochastic is 50. If it closes at 99, the stochastic is 90 (near the top of the recent range).
Support Level
A price level where buying pressure historically accumulates, preventing the asset from falling further. Support forms at prior lows, round numbers, or technical levels. A breach of support often leads to a test of the next support level down.
🔍 Investor Lens
Identify key support levels below your entry and use them to set stop-loss orders. When price approaches support, watch for volume spikes and reversals. Multiple retests of support at the same level strengthen its reliability; a clean break signals weakness and potential for further declines.
💡 Example
Support is like a floor in a building. The higher the floor, the less far you fall before landing. Strong floors hold; weak floors collapse, and you land on the next floor below.
T
Trend
The general direction of price movement (up, down, or sideways) over a specific timeframe. Uptrends make higher lows and higher highs; downtrends make lower lows and lower highs. Trends may persist for weeks or years and are the primary target of directional trading.
🔍 Investor Lens
The strongest returns come from identifying and riding established trends. Buy within uptrends on pullbacks to support; sell on rallies to resistance in downtrends. Trend identification is the foundation of risk management; fighting the trend is a common source of losses.
💡 Example
A trend is like the direction a river flows. Upstream movement is difficult; downstream movement is easy. A good swimmer goes with the current, not against it.
Trend Line
A straight line drawn connecting two or more points (highs or lows) to visualise trend direction and slope. Uptrend lines connect rising lows; downtrend lines connect falling highs. Trendline breaks signal potential trend reversals or accelerations.
🔍 Investor Lens
Draw trendlines on your charts to identify support and resistance dynamically. When price bounces off a trendline multiple times, the line becomes a reliable anchor for stops. A trendline break combined with volume and momentum confirms a trend change.
💡 Example
A trendline is like the slope of a hill you are walking on. The steeper the slope, the faster you climb or descend. A shallow slope is steadier and easier to maintain.
Triangle Pattern
A chart pattern formed by converging trendlines with roughly equal highs and lows, creating a triangle shape. Triangles signal consolidation before a breakout, typically within one to three weeks. Breakout direction is often unpredictable; traders trade the breakout itself, not the direction.
🔍 Investor Lens
Use triangles as a preparation signal. Enter at the triangle apex with a stop beyond the opposite edge. Triangle breakouts typically produce sharp moves; trade the volume surge more than the direction. Do not hold through the consolidation phase without a clear breakout.
💡 Example
A triangle pattern is like a crowd narrowing down a corridor. At first, everyone spreads across the wide entrance. As they move, they squeeze into a narrower passage. At the bottleneck, they either rush left or right depending on which exit they spot first.
V
VIX (Volatility Index)
The CBOE Volatility Index measures implied volatility of S&P 500 options, reflecting market-priced expectations of 30-day volatility. VIX above 20 signals elevated volatility; above 30 signals extreme fear. VIX is often called the fear gauge and tends to spike during sell-offs.
🔍 Investor Lens
Monitor the VIX as a macro risk indicator. High VIX (above 30) often precedes recovery, whilst rising VIX in rallies signals fragility. Use VIX spikes to buy dislocated assets or hedge portfolios. VIX below 12 signals complacency; add to defensive positions.
💡 Example
VIX is like a temperature gauge in a crowded room. When temperature rises, people are nervous and tense. When it drops back to normal, calm returns. Extreme heat (VIX above 40) rarely lasts long.
Volume (Technical Analysis)
The number of shares or contracts traded in a security or market during a given period. Volume confirms price moves and reveals buying or selling pressure intensity. Declining volume suggests weakening conviction; rising volume confirms trend strength and supports breakouts.
🔍 Investor Lens
Watch volume on key chart events: support bounces should show rising volume (buying interest); resistance breaks should show volume spikes (accumulation). Declining volume in a rally warns of weak conviction; rising volume in a decline signals panic selling. Use volume as a confirmation filter, never the sole signal.
💡 Example
Volume is like the number of people at a concert. A full venue (high volume) suggests the show is popular and energetic. An empty venue (low volume) suggests indifference. A sudden crowd surge (volume spike) signals something just changed.
VWAP (Volume-Weighted Average Price)
The average price paid for shares weighted by volume traded at each price level throughout the day. VWAP anchors intra-day fair value and is reset daily. Prices above VWAP signal institutional accumulation; prices below signal distribution.
🔍 Investor Lens
Use VWAP as an intra-day fairness reference point. Buying near VWAP in the morning provides a low-bias entry; selling near VWAP late in the day captures accumulated buyers. VWAP breaks (price closes above or below) signal conviction; hold positions through VWAP consolidation.
💡 Example
VWAP is the weighted average price you paid for items at a grocery store based on how much you bought at each price. If you bought more apples at a low price than at a high price, your average is pulled lower by that bulk purchase.
Suitability. The evidence notes and citations above are historical and convention-dependent. Nothing here is personalised investment advice or a recommendation, and past results are no guarantee of future performance. Technical trading carries a real risk of loss.
Last reviewed: 2026-07-08. Reviewed by the Beat Index research desk.