Technical Analysis Patterns Guide

Technical analysis helps traders identify trading opportunities based on price patterns and trends. This guide covers the most reliable patterns.

Support and Resistance

The foundation of technical analysis.

Support

Price level where buying pressure prevents further decline.

Resistance

Price level where selling pressure prevents further rise.

How to Draw

1. Connect at least 2-3 price points
2. More touches = stronger level
3. Valid until broken

Trend Lines

Uptrend Line

Drawn under pivot lows. Price making higher highs and higher lows.

Downtrend Line

Drawn above pivot highs. Price making lower highs and lower lows.

Moving Averages

Simple Moving Average (SMA)

Average price over specific period.

Common Periods

• 50-day: Short-term trend
• 200-day: Long-term trend

Golden Cross

50-day SMA crosses above 200-day SMA = Bullish signal

Exponential Moving Average (EMA)

Gives more weight to recent prices. More responsive than SMA.

Chart Patterns

Bullish Patterns

Double Bottom

• Two troughs at similar level
• Volume decreases on second trough
• Breakout above neckline = buy signal

Cup and Handle

• U-shaped cup (rounding bottom)
• Small handle (consolidation)
• Breakout above handle = buy signal

Ascending Triangle

• Flat resistance line
• Rising support line
• Breakout above resistance = buy signal

Bearish Patterns

Double Top

• Two peaks at similar level
• Volume decreases on second peak
• Breakdown below neckline = sell signal

Head and Shoulders

• Three peaks, middle highest
• Breakdown below neckline = sell signal
• Price target: Neckline to head height

Descending Triangle

• Flat support line
• Declining resistance line
• Breakdown below support = sell signal

Technical Indicators

RSI (Relative Strength Index)

What It Measures

Momentum and speed of price movements.

Key Levels

• Above 70: Overbought (potential reversal down)
• Below 30: Oversold (potential reversal up)

Divergence

Price makes new high but RSI doesn't = potential reversal

MACD (Moving Average Convergence Divergence)

Components

1. MACD Line: 12-day EMA - 26-day EMA
2. Signal Line: 9-day EMA of MACD
3. Histogram: MACD - Signal Line

Signals

• Bullish: MACD crosses above signal
• Bearish: MACD crosses below signal

Bollinger Bands

Components

• Middle band: 20-day SMA
• Upper/lower bands: ±2 standard deviations

Interpretation

• Price touches upper band: Potentially overbought
• Price touches lower band: Potentially oversold
• Bands narrow: Low volatility (potential breakout)
• Bands widen: High volatility

Volume Analysis

Volume confirms price movements:

• Price up + High volume: Strong move
• Price up + Low volume: Weak move
• Breakouts: Should have high volume

Candlestick Patterns

Bullish Reversals

• Hammer: Small body, long lower shadow
• Engulfing: Small red candle followed by large green candle
• Morning Star: Three-candle reversal pattern

Bearish Reversals

• Shooting Star: Small body, long upper shadow
• Bearish Engulfing: Small green candle followed by large red candle
• Evening Star: Three-candle reversal pattern

Trading Strategy Example

Setup

1. Identify uptrend using 50-day SMA
2. Wait for pullback to support
3. Look for bullish candlestick pattern
4. Confirm with RSI oversold condition
5. Enter on break above recent high

Risk Management

• Stop-loss: Below support/candle low
• Target: Next resistance level
• Position size: 1-2% of portfolio

Common Mistakes

1. Trading Against the Trend: "The trend is your friend"
2. Ignoring Volume: Price without volume is suspicious
3. Overtrading: Quality over quantity
4. No Stop-loss: Essential for risk management
5. Confirmation Bias: Seeing what you want to see

Practice Tips

1. Paper Trade First: Practice without real money
2. Keep Trading Journal: Learn from mistakes
3. Start Small: Minimize risk while learning
4. Focus on Few Patterns: Master before expanding
5. Multiple Timeframes: Check daily and weekly charts

Conclusion

Technical analysis is a probability game, not prediction. No pattern works 100% of the time. Combine technical analysis with:

• Risk management
• Fundamental analysis
• Market sentiment
• Proper position sizing

Success comes from consistency and discipline.