What Is Technical Analysis?
Technical analysis is the study of price charts and indicators to forecast future price movements. Unlike fundamental analysis (which looks at company financials), technical analysis focuses entirely on what the price is doing and has done in the past.
The core idea is simple: price reflects everything. All public information — earnings, news, sentiment — is already baked into the price. By studying price patterns and trends, you can identify opportunities before they become obvious.
The Three Pillars of Technical Analysis
- Price discounts everything — The current price already reflects all known information about a stock.
- Prices move in trends — Once a trend starts, it’s more likely to continue than reverse. Identifying trends early is the key to profitable trading.
- History repeats itself — Human psychology doesn’t change. The same patterns of fear and greed create similar price formations across different stocks and timeframes.
Reading a Price Chart
A price chart shows how a stock’s price has moved over time. The horizontal axis shows time, and the vertical axis shows price. The most common chart types are:
- Line chart — Connects closing prices with a simple line. Good for seeing the overall trend at a glance.
- Candlestick chart — Shows four prices per period: open, high, low, and close. Green (or white) candles mean the price went up; red (or black) candles mean it went down.
- Bar chart — Similar to candlesticks but uses vertical bars with small horizontal marks for open and close.
Understanding Trends
A trend is the general direction a stock is moving. There are three types:
- Uptrend — Higher highs and higher lows. The stock is making progress upward.
- Downtrend — Lower highs and lower lows. The stock is declining.
- Sideways (range) — The stock bounces between a support floor and resistance ceiling.
The most important rule in trading: trade with the trend. Buy stocks in uptrends and avoid (or short) stocks in downtrends. Moving averages are the easiest way to identify the trend direction.
Key Technical Indicators
Indicators are mathematical calculations based on price and volume data. They help confirm trends, identify reversals, and time entries. Here are the four that Scanance uses:
Moving Averages (MA150, MA200)
A moving average smooths out price data by calculating the average closing price over a set period. The MA150 (150-day moving average) and MA200 (200-day moving average) are long-term trend indicators. When a stock’s price is above its MA, the trend is bullish. When below, the trend is bearish.
RSI (Relative Strength Index)
RSI measures how fast and how much a stock’s price has moved recently on a scale of 0–100. Readings below 30 suggest the stock is oversold (potential buy), and readings above 70 suggest it’s overbought (potential sell).
MACD (Moving Average Convergence Divergence)
MACD tracks the relationship between two exponential moving averages (12-day and 26-day). When the MACD line crosses above the signal line, it’s a bullish signal. When it crosses below, it’s bearish. The histogram shows the distance between the two lines.
Combining Indicators for Better Signals
No single indicator is perfect. The power comes from combining multiple indicators to confirm signals. When MA150, RSI, and MACD all agree, the probability of a successful trade increases significantly.
This is exactly what Scanance’s Confirmed Signals feature does — it highlights stocks where at least 2 out of 4 indicators (MA150, MA200, RSI, MACD) give the same signal simultaneously.
Getting Started with Your First Analysis
- Open a stock scanner like Scanance and pick a market (e.g., S&P 500).
- Look at the MA150 buy signals — these are stocks trading just above their 150-day average, meaning the trend is bullish and the price is near a support level.
- Check the RSI for those stocks — if RSI is below 50, there’s still room for the price to run.
- Confirm with MACD — a bullish MACD crossover adds confidence to the trade.
- If 2+ indicators agree, you have a confirmed signal worth investigating further.