Beginners Guide to Technical Analysis: Tools, Strategies and Examples

If you want to learn about technical analysis, that means that you take trading seriously. Technical analysis reads price on charts to make clear decisions. It is all about trends, support and resistance, volume, patterns, and indicators. In this guide: core ideas, common tools, simple trading strategies, and practical steps for entry and exit.

You will learn how to test each idea for safe implementation in practice and build a rules-based plan through the premier backtesting tool Forex Tester Online. Here you will also find links to our other articles on this topic, where you can dive deeper and learn about specific strategies.

What is technical analysis in trading?

Technical analysis is the study of price and volume on charts to forecast probabilities. It assumes three core ideas:

• Markets discount information. News, expectations, and fear/greed show up in price action.
• Prices trend. Moves persist until supply-demand shifts.
• History rhymes. Repeating chart patterns and trader behavior create useful signals.

“If it worked before, it is likely to work this time as well”. Applying analysis doesn’t guarantee you anything, but it increases your chances of being a profitable trader.

To manage risk through rules rather than just forecasting, traders use tools like support and resistance, moving averages, momentum oscillators (often RSI and MACD), and candlestick patterns to define entry and exit. The goal is not prediction; it’s risk management with rules.

A long time ago, in the 1900s, early tape readers tracked price and volume. Dow Theory formalized trend concepts. Later, computers brought indicators, Fibonacci retracement, and volatility studies. Today, we test ideas with backtesting before risking capital.

Technical analysis vs Fundamental analysis

Technical analysis studies price action, volume, trends, and patterns to time entries and exits.

Fundamental analysis looks at earnings, rates, macro, valuation, news to judge intrinsic value.

• Technical = when to trade.
• Fundamental = what/why to trade.

Most traders blend both: use fundamentals to build a bias, then use technical signals for execution and risk management. We test timing rules with backtesting before going live.

Read the full comparison: Technical vs. Fundamental Analysis.

Basics of Technical Analysis to Know First

Think in pictures first. Price action shows who’s winning: buyers or sellers. Bars and candlesticks print that story. Start by reading swings, highs/lows, and where moves pause.

Price and volume basics

Price tells you direction. Volume tells you conviction. Rising price with rising volume = healthy move. Breakouts on thin volume often fail. Add a simple volume pane to every chart.

Trends, support, resistance

A trend is a sequence: higher highs/higher lows (up) or lower highs/lower lows (down). Draw trendlines under/over swings. Mark support and resistance where price turned multiple times. These zones frame entry and exit ideas and guide stop loss placement.

Market psychology and behavior

Crowds chase, panic, and hesitate. That’s why chart patterns (triangles, flags, double tops/bottoms) repeat. Momentum fades near obvious levels; traps happen around prior highs/lows. Stay rules-based to avoid FOMO.

Time frames

Same market, different lens. Use a higher time frame for bias, a working time frame to trade, and a lower one only for precision. Keep signals aligned across time periods.

From reading to testing

Turn observations into rules: “Buy pullback to support in an uptrend with rising volume.” Then run backtesting before money is at risk. This foundation makes the next step – using indicators – much easier.

Technical Indicators

Indicators quantify price action and volume so we can test rules, not guesses. Use them to confirm trend, momentum, volatility, and key support and resistance – then validate with backtesting.

Click the link to learn more about each indicator.

Relative Strength Index (RSI)

Momentum oscillator (0-100). Above 50 means bullish momentum, below 50 = bearish. Look for divergences near prior highs/lows and for pullbacks holding 40–50 in uptrends or 50–60 caps in downtrends.

MACD

Tracks momentum shifts with a fast/slow moving averages pair and a signal line. Crosses show impulse changes; the histogram shows acceleration/deceleration. Works well to confirm breakouts and trend pullbacks.

Bollinger Bands

Price vs. a moving average ± standard deviations. Bands contract – potential expansion; bands expand – manage risk. Tag-and-go along the outer band signals trend strength; swift re-entry after a poke outside often marks mean reversion.

Fibonacci retracement/levels

Map pullbacks inside a trend (38.2%, 50%, 61.8%). Combine with prior support and resistance or a trendline for confluence. Use for entry and exit planning and stop loss placement just beyond structure.

Volume and OBV

Volume confirms. Breakouts with rising volume are stronger. On-Balance Volume (OBV) ties direction to flow; rising OBV with flat price can front-run moves.

Stack, don’t crowd

Two to three tools are enough: one for trend (MA/VWAP), one for momentum (RSI/MACD), one for volatility/confirmation (Bands/Volume). Keep rules simple and test them.

How Forex Tester Online helps

FTO includes 50+ built-in indicators and oscillators, interactive charts with custom overlays, and realistic simulation (spreads, slippage, tick data). You can tag setups, fast-forward to signals, and run backtesting to see how each indicator combo affects win rate, drawdown, and expectancy.

Trading Patterns

In addition to indicators, technical analysts use chart patterns to turn crowd behavior into simple shapes. They help define bias, entry and exit rules, and stop loss levels. Always confirm with volume, price action, and (ideally, but not necessarily) one momentum tool.

Triangle (symmetrical, ascending, descending)

• What it shows: compression. Lower highs vs higher lows (symmetrical), rising base (ascending), or falling cap (descending).
• How to trade: mark the two converging lines. Enter on a clean break and close outside.
• Stops/targets: stop just inside the triangle. Your target is the widest part of the triangle projected from the break.

Head and Shoulders (and Inverse)

• What it shows: trend exhaustion. Three swings with the middle peak/trough larger; neckline defines the trigger.
• How to trade: enter on a neckline break/close. Retests often occur; they offer tighter risk.
• Stops/targets: stop beyond the right shoulder. Target is the head-to-neckline distance.

Double Top / Double Bottom

• What it shows: failed continuation at a prior extreme; potential reversal.
• How to trade: confirm with a break of the midpoint “neckline.”
• Stops/targets: stop above/below the second top/bottom. Wait for the pattern height.

Notes: false breaks are common; wait for a close or a retest. By the way, this also applies to many other patterns. Patterns don’t always work, and if you want to learn more about fake patterns, read this article.

Flags and Pennants

• What it shows: trend pause. Sharp impulse (“flagpole”) then a tight channel (flag) or mini-triangle (pennant).
• How to trade: enter on a break of the flag/pennant in trend direction.
• Stops/targets: stop outside the pattern. Your target is the flagpole measured move.

Rectangles (Ranges)

• What it shows: sideways price action between clear support and resistance.
• How to trade: buy the bottom/sell the top for mean reversion, or trade the breakout with volume confirmation.
• Stops/targets: for breakouts, stop back inside the box. Target = range height.

Wedges (Rising/Falling)

• What it shows: grinding swings losing power. Rising wedge often breaks down; falling wedge often breaks up.
• How to trade: draw both wedge lines; enter on a decisive break.
• Stops/targets: stop beyond the last swing. Target is the wedge height or last swing origin.

Cup and Handle

• What it shows: rounded base (accumulation), brief pullback (“handle”), then continuation.
• How to trade: enter on a break above the handle high.
• Stops/targets: stop under the handle low. Target = cup depth projected up.

Workflow tip. Write one rule set per pattern: trigger (close beyond level), invalidation (back inside structure), risk management (fixed R or ATR), and exits (measured move + trail).

Basic Technical Analysis Strategies

Each individual strategy deserves its own article. We won’t cover them in detail in this basic guide. We’ll simply run through a list of the most popular strategies.

• Trend-following is the simplest path. We read the trend with moving averages and plain price action. Higher highs and higher lows plus rising volume tell us to look long. Entries come on pullbacks to a rising MA with a clear candlestick pattern at support. Exits are easy: trail under swings or the 20-EMA. This works on all time frames if risk and stop loss are fixed and tested.
• Mean-reversion looks for stretched moves snapping back to an average. Bollinger Bands and the 20-EMA act as a guide. When price tags an outer band and RSI is extreme, we wait for a reversal candle and target the mid-band. It suits ranges, not trend days. Use tight entries and exits, and confirm with volume so you don’t fade real momentum.
• Momentum trades push after an impulse. We want a clean burst from a base, strong relative volume, RSI crossing through 55 for longs (or 45 for shorts), and a growing MACD histogram. Enter on the break or the first small pullback that holds. Keep stops tight, aim for 1.5R–2R, and let a fast MA manage the trail. Short holds, strict rules.
• Chart-pattern trading uses structures like head and shoulders, double top/bottom, flags, and triangles. The pattern defines entry and exit points, while Fibonacci retracement or projection helps set targets. Momentum or an oscillator such as RSI or MACD can confirm the trigger. Volume should expand on the break. Manage risk under the pattern’s invalidation line and let the trade work.
• Breakout trading focuses on support and resistance. We mark the level, wait for a decisive close beyond it, and look for volume confirmation to avoid false breakout signals. Some trades come on the retest of the broken line; others run right away. Targets often use a measured move from the range height. A clear stop loss sits back inside the level. Price action first, indicators second.

Whatever you choose, keep technical analysis simple, respect volatility indicators, and write rules you can execute.

Also read: 40 Forex Trading Strategies Explained in 2025

How to Do Technical Analysis for Trading

Use indicators

Start simple. Open a chart, spot the trend, and mark clear support and resistance. Add one or two helpers – say a moving average for direction and RSI for momentum.

Identify trading patterns

If you don’t know how to use indicators yet, you may start with identifying trading patterns. Head and shoulders’ for example, is easy to spot even without indicators.

Practice

Then write your rules: the entry, the stop loss, the target, and when you’ll step aside. Size the trade by risk, not by gut feel. Check the setup on a higher time frame so you’re not fighting the bigger move. After each trade, jot a quick note about what worked and what didn’t.

The next step is proof. Before live orders, run the same rules on historical data to see win rate, drawdown, and expectancy. That’s where backtesting tools come in.

Tool for Backtesting Technical Analysis

Backtesting turns chart ideas into facts. If you want to optimize a trading strategy based on technical analysis, you need to see how it behaved on real market history first. Forex Tester Online backtesting software gives you that proof without risking capital.

Practice entries, exits, and risk management on tick data across forex, crypto, indices, stocks, ETFs, and commodities. Replay markets, place orders on the chart, and study the results like a live account.

Why use FTO for technical analysis work?

✅ 20+ years of tick-level historical data
✅ Over 50 built-in indicators and oscillators (RSI, MACD, Bollinger Bands, OBV, Fibonacci tools)
✅ Realistic simulation: floating spreads, commissions, slippage, margin
✅ Custom timeframes and chart types (candlesticks, Heikin Ashi, range bars)
✅ Fast forward and Jump to Historical Moment (for example, MA crossovers, key levels, news)
✅ Easy drawing tools for trends, support and resistance, and price patterns
✅ Place market, limit, and stop orders; set stop-loss and take-profit directly on the chart
✅ Detailed analytics: win rate, R-multiple, drawdown, MAE/MFE, equity curve
✅ Mystery Mode to hide symbol/timeframe and reduce bias
✅ Prebuilt scenarios to test during major events; export trades to CSV
✅ Crypto backtesting with many coins available

Load a symbol, add your indicators, write simple rules, and run the test. If the stats look good, refine sizing and exits, then re-test on a new period. When the numbers hold, you have real evidence. After that, you can finally start trading, knowing exactly what you do and having confidence in your analysis.

Step-by-step Guide to Practice Technical Analysis via FTO

Step 1 – Get access

Go to the FTO site, click Get Started, pick a plan, create your account, and sign in.

Step 2 – Create a project

Click + New Project. Name it “TA Practice”.

Select symbols (we support 700+ pairs for Forex, stocks, crypto, indices and commodities).
Choose start/end dates (use 5-10+ years for range).
Set virtual deposit, spread, commission, and slippage. Press Play to load charts.

Step 3 – Set up your chart

Add core tools: Volume, RSI(14), MACD(12,26,9), ATR(14), 20/50 EMA, and Bollinger Bands(20,2).

Turn on drawing tools. Mark support and resistance, trendlines, and key Fibonacci retracement levels (38.2%, 50%, 61.8%).

Save the layout as a template.

Step 4 – Pick a strategy to test

Choose one idea per run:

• Trend-following: trade with 20/50 EMA slope and higher highs/lows.
• Mean-reversion: fade tags of Bollinger outer band with RSI extremes.
• Breakout: trade closes beyond clear levels with volume pickup.
  Write the rules in a note on the chart. Keep them fixed for the whole test.

Or, if you are new to trading, you can start with spotting trading patterns on a raw chart.

Step 5 – Define entries, exits, and risk

Entries: candle close per your rule (e.g., EMA cross + structure break), or a clean retest.
Stop loss: beyond structure or 0.8–1.5 × ATR.
Targets: 1.5R–2R first take-profit, or measured move; trail with 1 × ATR or the 20 EMA.
Risk per trade: fixed % of equity (e.g., 0.5-1%).

Step 6 – Replay and place trades

Press Play and control speed with the slider.

Place orders via New Order or stop orders at your trigger price.
Use Jump To to review specific dates, sessions, and event days.
Tag each trade: trend, reversion, breakout; add notes on context.

Step 7 – Review analytics

Open Analytics. There you will see your record win rate, average R, expectancy, max drawdown, MAE/MFE, time-in-trade. Advanced analytics tap will display 20+ metrics, your trading style, risk management skills, and recommendations.

Step 8 – Iterate and validate

Change one input at a time (EMA lengths, RSI bands, ATR stop, volume filter).
Re-test on different years and symbols.

Keep settings that hold up across regimes. Save the template for the next run.

Common Mistakes

• Trading only indicators, ignoring price action and market context.
• Skipping macro events (CPI, rates, jobs) that can break any setup.
• Weak risk rules: no stop loss, oversizing, averaging losers.
• Strategy hopping; not sticking to one tested plan.
• Entering late from FOMO, chasing extended candles.
• Misreading support and resistance. Drawing lines everywhere.
• No backtesting or journaling. Guessing instead of measuring.
• Falling for liquidity grabs: buying breakouts into supply or shorting into demand.

Conclusion

Technical analysis is a skill, not a trick. Read price, respect trend, map support and resistance, and use a few clean indicators for confirmation. Then backtest the rules until the numbers make sense. Forex Tester Online lets us practice on real historical data, refine entries and exits, and build confidence before risking capital. Keep it simple, measure everything, and improve one tweak at a time.

Disclaimer

Trading involves risk. The indicators in this article are for educational purposes only and are not financial advice. Past performance does not guarantee future results. Always test strategies before using real money.

FAQ

How do I start with technical analysis without getting lost?

Begin with price action on clean charts. Mark support and resistance, add one or two indicators (we recommend to start with moving averages + RSI), and keep rules simple.

Which time frames work best for beginners?

Use one or two time frames only. Many start with the 1-hour for signals and the daily for trend. Short time periods add noise; longer ones add context.

What indicators confirm momentum cleanly?

For momentum, use Relative Strength Index and MACD (both are oscillators). Pair them with a 20/50 moving averages stack to see direction and strength.

How do I use Fibonacci retracement levels?

In a trend, anchor the swing high/low and track Fibonacci retracement levels (38.2%, 50%, 61.8%). Look for confluence with support and resistance or candlestick patterns.

Do I need volume in my analysis?

Yes. Volume confirms moves. A breakout with higher volume beats one without. Add a simple volume pane or On-Balance Volume to your charts.

What’s the fastest way to validate a trading strategy?

Run strict backtesting. Define entries/exits, test on historical data, and review win rate and drawdown. Use it to tune trading strategies before live risk.

Which volatility indicators should I try first?

Start with ATR and Bollinger Bands. They are simple volatility indicators for stop distance, target sizing, and price patterns that expand or contract.

Can technical analysis work across markets?

Yes. The same chart patterns, trends, and support/resistance rules apply to forex, stocks, crypto, and commodities. Just adapt the time frames and risk.