Technical Analysis Guide

2. Support & Resistance

Support and resistance are price levels where buying or selling pressure has historically been strong enough to reverse or pause the trend.

• Support — A price floor where buyers have historically stepped in, preventing further decline
• Resistance — A price ceiling where sellers have historically overwhelmed buyers, preventing further advance

When price approaches these levels, analysts watch for one of two outcomes:

• Bounce — Price respects the level and reverses, offering structural continuity in the direction of the trend
• Breakout — Price breaks through the level with conviction, signaling a potential trend continuation or structural shift

Ask Diplyzer:

3. Momentum

Momentum measures the speed and strength of price movement. Strong momentum in a direction confirms trend health. Weakening momentum is an early indicator of potential deceleration or reversal.

Most momentum indicators oscillate between overbought (rapid advance, exhaustion risk) and oversold (sharp decline, potential reversal) zones.

Key Technical Indicators

Diplyzer provides access to over 70 technical indicators across all major categories. Here are the most widely used:

Moving Averages

Moving averages smooth out price noise and highlight the underlying trend direction.

• Simple Moving Average (SMA) — The average of closing prices over a period (e.g., 50-day SMA, 200-day SMA)
• Exponential Moving Average (EMA) — Gives more weight to recent prices, reacts faster to new data
• Golden Cross — When the 50-day SMA crosses above the 200-day SMA: a bullish long-term trend signal
• Death Cross — When the 50-day SMA crosses below the 200-day SMA: a bearish long-term trend signal

Ask Diplyzer:

RSI (Relative Strength Index)

The RSI measures momentum on a scale from 0 to 100. The most widely used momentum indicator in technical analysis.

• Above 70 — Overbought. Price has moved up quickly and may be due for a pullback or consolidation.
• Below 30 — Oversold. Price has fallen sharply and buyers may step back in.
• RSI Divergence — When price makes a new high but RSI does not: an indicator that the uptrend is losing momentum.

Ask Diplyzer:

MACD (Moving Average Convergence Divergence)

The MACD shows the relationship between two EMAs and signals trend changes.

• MACD Line crosses above Signal Line — Bullish crossover: potential upward momentum transition
• MACD Line crosses below Signal Line — Bearish crossover: potential downward momentum transition
• MACD Histogram — Shows the distance between the MACD and Signal lines; expanding histogram confirms trend strength, shrinking histogram indicates momentum deceleration

Ask Diplyzer:

Bollinger Bands

Bollinger Bands plot two standard deviation channels around a 20-period moving average, defining a dynamic "envelope" around price.

• Price touching the upper band — Price is extended to the upside; potential mean-reversion or strong trend walk
• Price touching the lower band — Price is extended to the downside; potential bounce
• Bollinger Band Squeeze — When the bands narrow significantly: a period of low volatility that often precedes a major directional move
• Band Expansion — When bands widen rapidly: confirming a new volatility expansion phase

Ask Diplyzer:

Stochastic RSI

A faster-reacting oscillator that measures where RSI is relative to its own high-low range over a period. Useful for evaluating short-term momentum shifts within a broader trend.

Ask Diplyzer:

ATR (Average True Range)

ATR measures market volatility — how much an asset typically moves in a single period. Used to:

• Establish quantitative volatility thresholds (e.g., 2× ATR from price)
• Size positions proportional to actual market volatility
• Identify when volatility is expanding or contracting

Ask Diplyzer:

Chart Pattern Recognition

Chart patterns are recurring formations in price that carry predictive value based on historical behavior. Diplyzer's algorithmic scanner detects these patterns automatically — no manual line-drawing required.

Reversal Patterns

These patterns signal that the current trend is likely ending and a new opposing trend may begin:

Head and Shoulders — One of the most reliable bearish reversal patterns. A left shoulder, a higher peak (the head), and a right shoulder form, with a "neckline" connecting the troughs. A break below the neckline confirms the pattern and signals bearish continuation.

Inverse Head and Shoulders — The mirror image: a bullish reversal from a downtrend. A breakout above the neckline signals upside momentum.

Double Top — Price makes two attempts to break above a resistance level and fails both times. The second failure signals exhaustion and a likely reversal downward.

Double Bottom — Price touches a support level twice, rebounding each time. The second successful bounce signals that buyers are defending the level.

Triple Top / Triple Bottom — Similar to double tops and bottoms, but with three price attempts. More reliable but take longer to form.

Ask Diplyzer:

Continuation Patterns

These patterns signal that the prevailing trend is pausing to consolidate before resuming in the same direction:

Bull Flag — A sharp upward move (the flagpole) followed by a brief downward or sideways consolidation (the flag). A breakout above the upper flag boundary signals trend continuation.

Bear Flag — The inverse: a sharp downward move followed by a brief upward consolidation. A break below the lower flag boundary signals bearish continuation.

Ascending Triangle — Price makes equal highs against a flat resistance line while higher lows indicate increasing buyer pressure. Breakout above resistance is bullish.

Descending Triangle — Price makes equal lows against a flat support line while lower highs indicate increasing seller pressure. Breakdown below support is bearish.

Symmetrical Triangle — Price converges between a rising support and falling resistance line. The breakout direction is not predetermined — watch for volume confirmation.

Cup and Handle — A rounded recovery forming a cup shape, followed by a small pullback (the handle). A breakout above the handle resistance signals a powerful bullish continuation.

Rising / Falling Wedge — Converging trend lines that indicate a counter-trend move is running out of momentum. Rising wedges typically resolve to the downside; falling wedges typically resolve to the upside.

Ask Diplyzer:

Japanese Candlestick Patterns

Candlestick patterns reveal the battle between buyers and sellers within individual candles or small groups of candles. Diplyzer scans for over 60 candlestick patterns.

Single-Candle Formations

• Hammer — Small body at the top, long lower wick. Signals buyers rejected a downside attempt; bullish reversal indication at support
• Shooting Star — Small body at the bottom, long upper wick. Signals sellers rejected an upside attempt; bearish reversal indication at resistance
• Doji — Opening and closing price nearly identical. Represents indecision. Notable when appearing after a strong trend
• Marubozu — Full-bodied candle with no wicks. Strong directional conviction from open to close

Two-Candle Formations

• Bullish Engulfing — A bearish candle followed by a larger bullish candle that completely engulfs it. Bullish reversal formation after a downtrend
• Bearish Engulfing — A bullish candle followed by a larger bearish candle that engulfs it. Bearish reversal formation after an uptrend
• Piercing Line — In a downtrend, a bearish candle followed by a bullish candle that closes above the midpoint of the prior candle: bullish reversal

Three-Candle Formations

• Morning Star — Bearish candle, small indecision candle, strong bullish candle. Bullish reversal formation
• Evening Star — Bullish candle, small indecision candle, strong bearish candle. Bearish reversal formation
• Three White Soldiers — Three consecutive strong bullish candles. Confirms the start of an uptrend
• Three Black Crows — Three consecutive strong bearish candles. Confirms the start of a downtrend

Ask Diplyzer:

Harmonic Patterns: Fibonacci-Based Precision

Harmonic patterns are advanced formations defined by precise Fibonacci ratio relationships between price swing points. They identify potential reversal zones with a high degree of mathematical precision.

Diplyzer detects harmonic patterns including:

• Gartley — One of the most common harmonics; identifies potential reversal zones within a larger trend
• Bat — A similar structure with tighter Fibonacci relationships; harmonic inflection zone at the D point
• Butterfly — An extension pattern that identifies reversals at extreme price extensions
• Crab — The deepest harmonic extension; offers precise inflection detection at extreme D points
• Cypher — A less common but reliable pattern with specific ratio requirements

Ask Diplyzer:

Volume Analysis

Volume is the "fuel" of price movement. Price moves on high volume are considered reliable and sustainable. Price moves on low volume are considered suspect and may reverse.

Key volume principles:

• Rising price + rising volume — Healthy uptrend with conviction
• Rising price + falling volume — Uptrend losing momentum, potential top forming
• Falling price + rising volume — Strong selling pressure, bearish confirmation
• Falling price + falling volume — Downtrend losing momentum, potential bottom forming

Ask Diplyzer:

Multi-Factor Technical Confluence Framework

The most powerful technical analysis combines multiple tools to create confluence — when several independent indicators all point in the same direction at the same time.

A robust technical framework typically evaluates:

1. Trend identification — What direction is the market moving on higher timeframes?
2. Support/Resistance level — What key historical level is price testing?
3. Pattern — Is there a chart or candlestick formation confirming structure?
4. Momentum confirmation — Does the RSI or MACD confirm the move?
5. Volume confirmation — Is volume expanding in the direction of the move?

Ask Diplyzer for a complete confluence analysis:

FAQs

What timeframe should I use? Different timeframes serve different purposes. Use monthly and weekly charts to identify the major trend. Use daily charts for swing trade setups. Use 4-hour and 1-hour charts for timing entries. Use 15-minute or shorter for scalping. Always trade in alignment with the higher timeframe trend.

Do indicators work in all markets? Technical indicators work across all liquid markets — stocks, crypto, forex, and commodities — though their effectiveness varies. In trending markets, trend-following indicators (moving averages, MACD) work well. In ranging markets, oscillators (RSI, Stochastic) work better.

Can I rely solely on technical analysis? Technical analysis is most powerful when combined with fundamental awareness and market intelligence. A great chart pattern in a fundamentally weak company during a market selloff is a very different proposition than the same pattern in a fundamentally strong company during a bull market. See our Fundamental Analysis Guide and Market Intelligence Guide.

Start Your Technical Analysis Now

Diplyzer makes institutional-grade technical analysis instantly accessible through a simple conversation. Try asking:

Don't have an account yet? Start your free analysis today and experience what it feels like to have a complete research team at your fingertips.