Key Technical Terms in Technical Analysis (With Short Descriptions)

Technical analysis is a popular method used by traders to predict stock price movements based on past price trends and market patterns. To master technical analysis, it's essential to understand key technical terms and indicators that guide trading decisions.

Here’s a list of important technical terms with their short descriptions to help you navigate the stock market like a pro.

1. Price & Trend-Related Terms

1.1 Support

A price level where a stock tends to stop falling and bounce back due to strong buying interest.

1.2 Resistance

A price level where a stock tends to stop rising and reverse downward due to strong selling pressure.

1.3 Trend Line

A straight line connecting higher lows (uptrend) or lower highs (downtrend) to identify the stock's direction.

1.4 Breakout

When the stock price moves above resistance or below support, signaling a strong price movement.

2. Chart Patterns

2.1 Head and Shoulders

A trend reversal pattern where the stock forms three peaks, with the middle peak being the highest.

2.2 Double Top & Double Bottom

• Double Top: Bearish reversal pattern with two peaks at the same resistance level.
• Double Bottom: Bullish reversal pattern with two troughs at the same support level.

2.3 Cup and Handle

A bullish continuation pattern resembling a cup followed by a small dip (handle) before an upward breakout.

2.4 Flags & Pennants

Short-term continuation patterns indicating a brief pause before the trend resumes in the same direction.

3. Technical Indicators

3.1 Moving Averages (MA)

• Simple Moving Average (SMA): Average closing price over a specific period (e.g., 50-day, 200-day MA).
• Exponential Moving Average (EMA): Gives more weight to recent prices for faster trend identification.

3.2 Relative Strength Index (RSI)

A momentum indicator that measures overbought (above 70) or oversold (below 30) conditions.

3.3 Moving Average Convergence Divergence (MACD)

A trend-following indicator that helps identify bullish or bearish momentum using two moving averages and a histogram.

3.4 Bollinger Bands

A volatility indicator that consists of three bands (upper, middle, and lower) to track price fluctuations.

4. Volume & Market Strength Indicators

4.1 Volume

Represents the number of shares traded in a given time frame, indicating the strength of a price move.

4.2 On-Balance Volume (OBV)

A volume-based indicator that tracks the cumulative buying and selling pressure.

4.3 Accumulation/Distribution Line (A/D Line)

Measures whether money is flowing into (accumulation) or out of (distribution) a stock.

5. Candlestick Patterns

5.1 Doji

A neutral candlestick pattern where the opening and closing prices are almost the same, signaling indecision.

5.2 Hammer & Inverted Hammer

• Hammer: Bullish reversal pattern appearing at the bottom of a downtrend.
• Inverted Hammer: Similar to a hammer but forms at the top, signaling a possible reversal.

5.3 Engulfing Pattern

• Bullish Engulfing: A small red candle is followed by a large green candle, indicating a bullish reversal.
• Bearish Engulfing: A small green candle is followed by a large red candle, indicating a bearish reversal.

5.4 Morning Star & Evening Star

• Morning Star: A three-candle bullish reversal pattern.
• Evening Star: A three-candle bearish reversal pattern.

6. Market Sentiment Indicators

6.1 Fear & Greed Index

Measures market sentiment on a scale from extreme fear (bearish) to extreme greed (bullish).

6.2 VIX (Volatility Index)

Also known as the "Fear Index," it tracks market volatility and investor sentiment.

6.3 Put-Call Ratio (PCR)

Compares the number of put options vs. call options, indicating bearish (>1) or bullish (<1) sentiment.

Conclusion

Mastering these technical analysis terms helps traders identify trends, predict price movements, and make informed trading decisions. Whether you’re a beginner or an advanced trader, understanding these concepts can improve your trading strategy and profitability.

Want to become a better trader? Start applying these technical indicators and patterns in your analysis today!