Technical analysis is the study of past price data to identify patterns and probabilities for future price movement. It is the most widely used analytical framework in retail forex trading — and when applied systematically, it provides clear, objective entry and exit signals that remove emotion from trading decisions.
The Foundation: Support and Resistance
Support and resistance (S/R) levels are the cornerstone of all technical analysis. Price tends to react at these zones because traders cluster their orders there — creating self-fulfilling patterns of buying at support and selling at resistance.
- Previous highs and lows: Where price reversed before — it often does so again
- Round numbers: 1.1000, 1.1500 on EUR/USD — psychological magnets for orders
- Fibonacci levels: 38.2%, 50%, 61.8% retracements of impulse swings — natural pullback targets
- Moving average levels: 50 EMA, 200 EMA as dynamic support/resistance
- Prior support becomes resistance after a break — and vice versa (a key principle)
The Three Core Indicators
Key Candlestick Patterns
| Pattern | Type | Signal | Reliability |
|---|---|---|---|
| Pin Bar (Hammer/Shooting Star) | Reversal | Long wick shows rejection of a level; body at opposite end | High |
| Engulfing Candle | Reversal | Large body fully engulfs previous candle — momentum shift | High |
| Doji | Indecision | Open ≈ Close; market is undecided — watch next candle for direction | Medium |
| Inside Bar | Continuation | Candle contained within prior candle — compression before breakout | Medium |
| Morning/Evening Star | Reversal | 3-candle pattern at key levels; strong reversal signal | High |
Multi-Timeframe Analysis
The most powerful application of technical analysis is aligning multiple timeframes for high-confluence setups:
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