Technical Analysis: Basic terminology

Technical analysis A method for predicting future market movements by analysing historical market data, typically utilizing charts.
Trendline A line added to a chart to represent the trend in a market or in a stock.
Channel Two parallel trendlines, one for the support level and one for the resistance level, will form a channel on the chart.
CFD Certificate for difference. A type of financial instruments that are very popular among day traders.  They make it possible to earn a lot of money from small market movements.  You can learn more about CFD:s and how they work here.
Support level A price level below which the price rarely (or never) falls during the studied period of time.
Resistance level A price level above which he price rarely (or never) rise during the studies period of time.
Volume The number of shares traded during the studies period of time.
Time scale In technical analysis, you will find time scale information at the bottom of the chart. It will tell you about the time range for the chart, e.g. one trading day or one trading week comprised of five trading days.

Examples of commonly used time scales in technical analysis are intraday, daily, weekly, monthly, quarterly and annually.

Price scale In technical analysis, you will find the price scale on the right-hand side of a chart that contains price information. The price scale can be linear or logarithmic.
Chart types The four most commonly used chart types in technical analysis are the line chart, the bar chart, the candlestick chart and point & the figure chart.
Chart pattern Technical analysts believe that certain patterns on a chart predicts events that are very likely to occur in the future.

Especially important are the patterns that predict either a continuation of the current trend or a reversal of the current trend.

Examples of commonly used patterns:

  • Head & Shoulders (indicates reversal)
  • Double Tops (indicates reversal)
  • Double Bottoms (indicates reversal)
  • Triple Tops (indicates reversal)
  • Triple Bottoms (indicates reversal)
  • Rounding Bottom (indicates longer-term reversal from downward to upward trend)
  • Saucer Bottom (synonym for rounding bottom)
  • Cup & Handle (indicates continuation of a bullish trend)
  • Flag (indicates short-term continuation)
  • Pennant (indicates short-term continuation)
  • Wedge (can indicate continuation or reversal, depending on the circumstances)
Indicators In technical analysis, indicators are calculations based on historical price and historical volume. Indicators are often used to create buy or sell signals. Indicators can measure trends, volatility, momentum, money flow, etc.

Examples of common indicators:

Accumulation / distribution line

Average directional index (ADX)

Relative strength index (RSI)

On-balance volume (OBV)

Aroon indicator

Leading indicator An indicator that precedes price movements.
Lagging indicator An indicator that folltiows price movements.