Part 5 · Chapter 2

Technical Analysis Basics

AT A GLANCE

Technical analysis studies price and volume to gauge probabilities. You'll learn trends, support/resistance, and key indicators without treating them as certainties.

TrendsSupport/ResistanceRSIMACDMoving AveragesChart Patterns

Who Is This For?

•Traders new to chart analysis
•Investors wanting to time entries better

Learning Objectives

1.Draw trend lines and identify key levels
2.Interpret RSI, MACD, and moving averages
3.Recognize limitations of TA in crypto markets

Important disclaimer: TA shows probabilities, not certainties. No indicator or pattern guarantees future price movement. Always use proper risk management and never risk more than you can afford to lose.

Section 1

Core Principles

💡

Price Discounts Information

Everything known — news, sentiment, fundamentals — is already reflected in the price. TA reads what the collective market believes, not what "should" happen.

📈

Trends Persist Until Broken

Markets tend to continue in one direction until a clear reversal signal. Trade WITH the trend, not against it — the trend is your friend until it ends.

🔄

Patterns Repeat

Market psychology creates recurring formations. Fear, greed, and FOMO drive the same shapes in price action across different assets and timeframes.

⏰ Choose Your Timeframe

Your strategy determines your chart timeframe. Match them or your signals will conflict:

Swing Trading

Days to weeks

The sweet spot for most crypto traders. Captures multi-day moves using daily or 4H charts. Allows time to analyze without constant monitoring.

Pros

Balanced signal quality, manageable time commitment, good risk/reward

Cons

Overnight gap risk, requires patience, fewer setups per week

Best Indicators

20/50 SMA, RSI (14), MACD, support/resistance

Section 2

Tools & Indicators

📊 Interactive Price Chart

ETH/USD simulated daily chart — toggle moving averages and volume:

Bullish candle (close > open)

Bearish candle (close < open)

20 SMA (short-term)

50 SMA (medium-term)

📊 RSI Oscillator

RSI(14) for the chart above — watch how it correlates with price swings:

🔍 Indicator Deep Dive

Moving Averages (SMA/EMA)

Average closing price over N periods. SMA treats all equally; EMA weights recent prices more.

Key Levels: 20 SMA (short-term), 50 SMA (medium), 200 SMA (long-term)

Signals:

Golden Cross

50 SMA crosses above 200 SMA → bullish long-term shift

Death Cross

50 SMA crosses below 200 SMA → bearish long-term shift

Price above all MAs

Strong uptrend — MAs act as dynamic support

Price below all MAs

Strong downtrend — MAs act as dynamic resistance

⚠️ Limitation: Lagging indicator — by the time a cross happens, much of the move may be over. False crosses common in choppy markets.

Section 3

Patterns & Probabilities

🔎 Pattern Explorer

👤

Head & Shoulders

ReversalReliability: High

Three peaks: left shoulder, higher head, right shoulder. The neckline connects the two troughs. A break below the neckline signals reversal from uptrend to downtrend.

How to Trade It:

Wait for neckline break with volume confirmation. Target = head height projected below neckline. Stop above right shoulder.

✅ Confluence Checker

One indicator is never enough. Check how many factors align before entering a trade:

Trading with the trend (not against it)Direction

Price at significant support or resistance levelLevel

Moving average confirming direction (price above/below)Indicator

RSI not at extreme (or divergence present)Indicator

Volume confirms the move (above average)Confirmation

Chart pattern aligns with trade directionPattern

Risk/reward ratio is at least 1:2Risk Mgmt

Clear stop-loss level defined before entryRisk Mgmt

Confluence Score:0/13

🚨 Weak confluence — too few factors aligned. Likely not a high-probability setup. Wait for a better entry.

Watch Out

Common Mistakes & Gotchas

🔬

This microcap coin shows a perfect cup-and-handle on the 5-minute chart!

TA is unreliable on low-liquidity coins. A single whale order can paint any pattern. Stick to high-volume assets where patterns reflect genuine market behavior, and use higher timeframes.

👀

I see a bullish flag AND a head-and-shoulders AND a divergence — confirming my buy!

Confirmation bias is TA's biggest enemy. If you're looking for reasons to justify a trade you've already decided on, you'll find them. Seek DISconfirming evidence too. Ask: what would make this trade wrong?

📰

My chart shows a breakout — I'm going all in, ignoring the bearish news

TA measures market psychology, but major news can override any pattern. SEC lawsuits, exchange hacks, or regulatory changes can invalidate any chart setup. Always be aware of the fundamental backdrop.

🔄

The 4H chart is bearish, but the 15-minute is bullish — I'll trade the 15-min

Switching timeframes to find a bullish view is self-deception. Higher timeframes carry more weight. If the daily is bearish and the 15-min is bullish, the 15-min rally is likely a pullback within a larger downtrend.

📊 Golden Rule: Technical analysis shows you where traders MIGHT react — not where price WILL go. Always combine TA with risk management, and never bet your portfolio on a single pattern or indicator.

Test Yourself

Knowledge Check

Next Steps

→Continue learning: "Risk Management Essentials" to tie TA with disciplined execution

→Hands-on practice: Journal one trade idea with entry, stop, and take-profit based on chart levels