We recently explored how market psychology plays into technical analysis, covering candlesticks, chart patterns, and support and resistance. These tools can help traders time the market, but they’re not magic—there are limitations, and context is everything. This week, let’s break down how to properly identify support and resistance, understand candlestick and chart patterns, and find high-probability trade entries using multiple indicators.
How do I identify support and resistance using technical analysis?
Think of support and resistance as price’s comfort zones—areas where it has a habit of bouncing or getting rejected. Support is where price tends to find a floor, while resistance is where it runs into a ceiling. But here’s the catch: these levels aren’t static. Markets evolve, and what was once support can flip into resistance (and vice versa).
Take the Dow Jones sell-off in January. Price found support at a certain level multiple times, but once it broke below, that same level turned into resistance. This isn’t a hard rule—it’s a tendency. The market won’t always respect these levels perfectly, so don’t treat them as set-in-stone lines.
Instead, think of them as zones.
The sell-off in January saw many occurrences of support turning to resistance (orange resistance arrows forming where the blue support arrows were), including a time when price simply didn’t retrace far enough to find resistance (orange block and red X), at a close look, you will find that near these resistance zones, price either got close to a down sloping trendline, or formed a reversal candle pattern! Remember that support and resistance are zones, not single prices.
Want to boost accuracy? Look for multiple touches at a level, higher timeframes for usually result in stronger confirmation, and see if support and resistance align with other indicators. When everything lines up, your trade setup becomes much stronger.
How do I identify candlestick and chart patterns using technical analysis?
Candlestick and chart patterns are the heartbeat of technical analysis, but they’re not always textbook-perfect. In real trading, no two patterns are identical—they come in different shapes, sizes, and timeframes.
A double top might be slightly uneven, and an engulfing candle won’t always be a textbook reversal signal. That’s why memorisation isn’t the goal—understanding what these patterns tell you about price action is what really matters.
A common mistake traders make? Using the wrong timeframe. If you’re trading a 5-minute chart, a weekly double top probably isn’t relevant to your strategy. Likewise, a single 5-minute hammer candle won’t mean much for a month long swing trade. The best trades happen when multiple factors align—confluence is key. We will discuss multiple time frame analysis in the future.
How do I confirm trade entries using multiple indicators?
No single tool is foolproof. That’s why experienced traders stack different indicators to confirm trade setups. The goal? Increase confidence and filter out bad trades.
Imagine price is approaching a major resistance level. Instead of jumping in blindly, look for supporting signals like:
• A bearish candlestick pattern (engulfing candle, shooting star, etc.)
• Overbought RSI or bearish divergence
• A moving average crossover signalling a trend reversal
• Decreasing volume as price reaches resistance (showing fading momentum)
The more factors that line up, the stronger your setup. But here’s the trap: too many indicators can lead to analysis paralysis. If you’re waiting for the “perfect” setup with 10 different confirmations, you’ll either never trade or second-guess yourself constantly. Keep it simple—use a few solid indicators that complement your style and stick to them.
Context is important in technical analysis. Support and resistance, candlestick patterns, and indicators are most effective when used together. The goal isn’t to predict the market perfectly—it’s to stack the odds in your favour. No strategy wins 100% of the time, but refining your process and staying disciplined will put you ahead.
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