Technical analysis is a key component of modern trading. Technical analysis allows traders to estimate future market behaviour and identify profitable entry and exit points by evaluating past price movements and volume data. This glossary covers key words that every trader should be familiar with in order to confidently navigate the markets, including basic principles and chart patterns, technical indicators, and advanced price action strategies.

The Best Glossary of Technical Analysis for Traders

Technical analysis is the best way to increase the probability of success in the stock market. Here are all the major concepts you need to know before you start.

Basic Concepts

Technical Analysis

Definition: The use of historical market data, particularly price and volume, to estimate future price changes.

For example, a trader examines past price charts to detect recurring trends and patterns that indicate prospective buying or selling opportunities.

Trend

Definition: The overall direction in which an asset’s price moves over time—upward (bullish), downward (bearish), or sideways (range bound).

An uptrend can be identified on a stock chart by a succession of higher highs and higher lows.

Support

Definition: A price level at which demand is sufficiently strong to prevent further fall.

For example, when a stock bounces back after falling to $50, it works as support.

Resistance

Definition: A price level where selling pressure prohibits the price from growing any higher.

For example, if a stock struggles to gain beyond $75 and frequently reverses direction at that point, $75 is considered resistance.

Breakout

Definition: A movement in which the price exceeds a defined support or resistance level, frequently indicating the start of a trend.

For example, if a stock is trading in a confined range and suddenly moves over its resistance level, it may indicate a positive trend.

Pullback

Definition: A temporary reversal in the direction of a trend, which is sometimes interpreted as an opportunity to re-enter the dominant trend.

For example, in an uptrend, a quick price decrease that retraces a small percentage of the gain may be seen as a buying opportunity.

Trading Range

Definition: A time during which an asset’s price oscillates between a defined support and resistance level without forming a discernible trend.

For example, a stock that typically trades between $40 and $45 is within a trading range.

Chart Patterns

Head and Shoulders

Definition: A reversal pattern consisting of a peak (shoulder), a higher peak (head), and another lower peak (shoulder) that indicates a bullish-to-bearish trend reversal.

For example, a rising stock has three peaks, the middle peak being the highest; after the neckline is broken, the trend usually turns downward.

Double Top/Bottom

Definition: A reversal pattern in which the price hits a high (double top) or a low (double bottom) twice before reversing direction.

For example, a double top occurs when a stock reaches $100 twice but fails to break through before falling, indicating a bearish reversal.

Triangles (Ascending, Descending, Symmetrical)

Definition: Converging trendlines generate continuation patterns that indicate consolidation before the leading trend restarts.

For example, an ascending triangle with a flat top and increasing lows is typical of an uptrend.

Flag and Pennant Patterns

Definition: Short-term continuation patterns arise following a large price move, with consolidation occurring before the trend restarts.

For example, after a sharp rally, a flag pattern appears as a little rectangle; a breakout from the flag signals the uptrend will continue.

Cup and Handle

Definition: A bullish continuation pattern resembling a cup followed by a handle, signifying a brief consolidation before the upward trend resumed.

For example, a stock lowers to create a rounded bottom (the cup), followed by a short sideways movement (the handle), before bursting out upward.

Wedge

Definition: A pattern formed by converging trendlines that slope in the same direction. A rising wedge in an upswing is usually negative (showing an oncoming reversal), whereas a descending wedge in a downtrend is generally bullish.

For example, after a strong uptrend, a stock develops a rising wedge. When the price falls below the lower trendline, traders take it as a signal to sell.

Broadening Formation

Definition: A pattern in which price swings generate successively higher highs and lower lows, resulting in a “megaphone” shape. It indicates more volatility and uncertainty regarding the future course.

For example, a commodity price exhibits widening oscillations, forming a broadening formation, indicating that the market is experiencing increased volatility prior to a probable reversal.

Island Reversal

Definition: An uncommon reversal pattern characterised by a gap away from a trading range, followed by consolidation, and then another gap in the opposite direction.

For example, a stock may gap down abruptly and trade in a small range for a few days before gapping up, isolating that range as an “island”—indicating that a major reversal is occurring.

Rectangle Pattern

Definition: A continuation pattern in which prices fluctuate horizontally between parallel support and resistance levels before finally breaking out.

For example, a stock has been trading continuously between $30 and $35 for several weeks. A breakout above $35 could indicate the continuation of the current upswing.

Triple Top/Bottom

Definition: A reversal pattern in which the price tests a resistance (triple top) or support (triple bottom) level three times before changing direction.

For example, a stock reaches $80 three times without breaking through, then dips, indicating a triple top and a possible bearish reversal.

Gartley Pattern (Harmonic Pattern)

Definition: A harmonic pattern that uses Fibonacci ratios to identify potential reversal zones. It typically begins with a significant price move and forms a retracement followed by a continuation of the original trend.

For example, a trader spots a Gartley pattern in a stock chart where the retracement levels align with the 61.8% Fibonacci ratio. The trader then anticipates a reversal near the pattern’s completion and positions for a long entry.

Bat Pattern (Harmonic Pattern)

Definition: A harmonic pattern that utilises Fibonacci ratios to identify potential reversal points. It is characterised by a sharp initial move followed by a retracement and a final leg in the opposite direction.

For example, a trader identifies a bat pattern in a currency pair chart, with the final leg reaching the 88.6% Fibonacci ratio, signalling a potential reversal towards the original trend. The trader prepares to enter a short position as the pattern nears completion.

Crab Pattern (Harmonic Pattern)

Definition: A type of harmonic pattern that is characterised by a deep retracement and an extended reversal zone. It indicates a potential trend reversal after a significant move in price.

For example, if a stock experiences a sharp decline, a crab pattern may form with a retracement of around 61.8% or more. Traders look for confirmation signals to enter a long position in anticipation of an upward reversal.

Cup and Handle

Definition: A bullish continuation pattern resembling a cup, followed by a short consolidation (handle) before an upward breakthrough.

For example, a stock develops a rounded “cup” as it lowers before stabilising with a minor pullback. When the price breaks above the handle, traders view it as a signal to go long.

Technical Indicators

Moving Average (MA)

Definition: A calculated average of a security’s price over a given time period that smooths out price data to aid in trend detection.

For example, a 50-day simple moving average (SMA) can tell if a company is going upwards or downwards.

Relative Strength Index (RSI)

Definition: A momentum oscillator that monitors the rate and change of price movements on a scale ranging from 0 to 100.

For example, an RSI greater than 70 may indicate that a stock is overbought, whilst an RSI less than 30 may imply oversold conditions.

Moving Average Convergence Divergence (MACD)

Definition: A trend-following momentum indicator that displays the relationship between two moving averages of a stock’s price.

For example, a bullish signal arises when the MACD line crosses above the signal line.

Bollinger Bands

Definition: A volatility indicator is a moving average with two standard deviation lines displayed above and below it.

For example, narrowing the bands indicates lesser volatility; subsequent expansion may indicate an oncoming breakout.

Fibonacci Retracement

Definition: A method for identifying probable support and resistance levels based on crucial Fibonacci ratios obtained from a big market movement.

For example, traders may leverage the 61.8% retracement level as a potential support level following a stock rally.

Average True Range (ATR)

Definition: A volatility indicator that quantifies the average range of price change over a given time period.

For example, a rising ATR implies increased volatility, allowing traders to construct more accurate stop-loss orders.

On Balance Volume (OBV)

Definition: A cumulative volume-based indicator that adds volume on positive days and subtracts volume on negative days to measure purchasing and selling pressure.

For example, an increased OBV combined with rising prices demonstrates the strength of an upswing.

Stochastic Oscillator

Definition: A momentum indicator that compares a security’s closing price to its price range over a given time period and is frequently used to identify overbought or oversold conditions.

For example, when the stochastic oscillator rises above 80, a trader may consider the security overbought and seek a reversal.

Average Directional Index (ADX)

Definition: A metric that evaluates the strength of a trend (independent of direction) on a scale of 0 to 100.

For example, an ADX score above 25 suggests a strong trend, which may offer traders confidence that the present market direction will continue. Once ADX exceeds 50, the trend becomes very strong. However, at these levels, traders should take care because the market may have overheated and corrections are more likely.

Money Flow Index (MFI)

Definition: A volume-weighted momentum indicator that considers both price and volume when determining buying and selling pressure.

For example, an MFI greater than 80 may indicate that an investment has become overbought, implying that the price will shortly fall.

Pivot Points

Definition: Price levels determined using the preceding period’s high, low, and close to identify probable support and resistance zones.

For example, a trader uses daily pivot points to predict where the price will reverse and then enters trades when the price bounces off these levels.

Ichimoku Cloud

Definition: A multi-component indicator that defines support and resistance, indicates trend direction, measures momentum, and generates trading signals (for example, Tenkan-sen, Kijun-sen, Senkou Span A/B).

For example, a bullish signal is generated when the price is above the Ichimoku Cloud and the Tenkan-sen crosses above the Kijun-sen.

Volume Weighted Average Price (VWAP)

Definition: An intraday indicator that shows the average price at which a security has traded during the day, depending on both volume and price.

For example, institutional traders use VWAP to decide whether to buy or sell, as prices above VWAP may imply a bullish market attitude.

Commodity Channel Index (CCI)

Definition: An oscillator that evaluates the current price’s divergence from its average price over a given time period and is commonly used to identify cyclical trends and probable reversals.

For example, when a stock’s CCI rises above +100, a trader may perceive it as overbought, implying that a reversal is approaching.

Chaikin Oscillator

Definition: A volume-based indicator developed from the accumulation/distribution line that aids in determining the momentum of price fluctuations.

For example, if the Chaikin Oscillator begins to decrease while the stock price continues to rise, a trader may interpret this as an early signal of a likely negative reversal.

Relative Vigour Index (RVI)

Definition: An oscillator that compares a security’s closing price to its trading range, allowing traders to assess the conviction behind a price movement.

For example, a rising RVI with rising prices, for instance, indicates that the bullish momentum is strong, so favour a long entry.

Trix

Definition: A momentum oscillator that calculates the percentage change in a triple-smoothed exponential moving average, which is intended to filter out short-term volatility.

For example, when the Trix goes upward after a period of loss, it may indicate the start of a new upswing, enticing traders to buy.

Vortex Indicator

Definition: A trend-following indicator that compares upward and downward movements to determine the beginning of a new trend or the continuation of an existing one.

For example, when the positive vortex line crosses above the negative vortex line, a bullish signal is produced indicating the trend is changing upward.

Price Action & Advanced Concepts

Candlestick Patterns

Definition: Candlestick patterns are graphical representations of price movements that indicate market sentiment through the shape, size, and colour of the candlesticks.

For example, a hammer—a small body with a long lower shadow—in a downtrend could signal a bullish reversal.

Divergence

Definition: A scenario that might indicate a reversal whereby the price of an asset and a technical indicator (such as RSI or MACD) move in opposite directions.

For example, a bearish divergence might happen if a stock’s price hits a new high but the RSI does not.

Oscillators

Definition: Technical indicators that vary between predefined levels and aid in identifying overbought or oversold conditions.

For example, the stochastic oscillator, which compares a security’s closing price to its price range over a specified time period, can give buy or sell recommendations.

Volume Analysis

Definition: The analysis of trading volume to confirm trends and chart patterns that show the strength or weakness of price movements.

For example, a breakout verified by a large volume is often thought to be more reliable than one with a small volume.

Price Action Trading

Definition: A trading strategy based on reading and understanding raw price data, with or without the assistance of indicators.

For example, a trader may use a “failed breakout” (when the price retraces after breaking a critical level) to enter a trade in the opposite direction.

Trend Channels & Microtrend Lines

Definition: Tools that draw parallel lines along price highs and lows to define the edges of a trend. Microtrend lines show short-term movement in the direction of the larger trend.

For example, a trader could use a trend channel to determine where a price is likely to find support or resistance and then enter a trade when the price bounces off the channel’s boundary.

Inside Bar

Definition: A bar whose high and low are within the previous bar’s range, indicating a period of consolidation and potential breakouts.

For example, a trader places pending orders above and below an inside bar, waiting for a breakout to signify the next trend move.

Outside Bar

Definition: A bar that totally engulfs the previous bar’s high and low, indicating heightened volatility and likely trend reversal.

For example, in a downtrend, an outside bar forms and then reverses, indicating that selling pressure is decreasing.

Reversal Bar

Definition: A bar that indicates a shift in trend direction, usually with a long body and a big gap from preceding prices.

For example, a bearish reversal bar in an uptrend could feature a long red body and a lower low that breaks previous support, warning traders of a likely trend change.

Trendline Break

Definition: A price movement that penetrates a previously drawn trendline, indicating a potential weakening of the current trend.

For example, when a stock in an uptrend breaks below its upward sloping trendline, traders may consider selling or shorting.

False Breakout

Definition: A circumstance in which the price temporarily climbs above a critical level (support or resistance) but subsequently reverses, trapping traders who entered during the breakout.

For example, if a stock momentarily trades above a resistance level before falling back below it, individuals who bought during the breakout will lose money on their investment.

Trapped Traders

Definition: Traders that initiate a position prematurely or on a false signal and are compelled to withdraw when the price reverses, causing the market to move faster.

After a failed breakout, a cascade of stop-loss orders from trapped traders can exacerbate a negative move.

Climactic Exhaustion Bar

Definition: A huge bar near the end of a trend that indicates that purchasing or selling pressure has peaked, usually preceding a reversal.

For example, during a powerful rise, a climactic exhaustion bar appears with a very lengthy body and huge volume; once formed, the market may quickly reverse downward.

Stop Run or Stop Hunt

Definition: A sharp price movement that “runs” across locations with a high concentration of stop-loss orders, activating them and increasing the price movement.

For example, a quick decline in a stock’s price sets off a chain reaction of stop-loss orders, leading the price to plummet even more.

Microtrend Lines

Definition: Short-term trendlines created on shorter time frames to capture transitory directional fluctuations within a bigger trend.

For example, a trader may employ microtrend lines to time entries during tiny pullbacks in an overall upswing.

Pin Bar

Definition: A candlestick with a relatively small body and a lengthy tail (or “wick”) that indicates rejection of a specific price level and a possible reversal.

For example, in a downtrend, a bullish pin bar with a lengthy lower tail appears, showing that sellers pushed the price down before buyers stepped in to drive it up. Traders may interpret this occurrence as a hint to go long.

Retest

Definition: A price action event in which the price returns to a previously broken support or resistance level (the “magnet”) to test its validity before continuing in the direction of the breakout.

For example, after a breakout above resistance, the price retests the level as support. A successful retest can provide a more secure entry opportunity for traders.

Order Flow Imbalance

Definition: A circumstance in which there are a disproportionate amount of buy orders compared to sell orders (or vice versa), resulting in rapid price volatility.

When a fast rush in sell orders outnumbers buy orders, a trader may notice an order flow imbalance, resulting in a quick drop in price.

Early Entry

Definition: Taking a trade before receiving complete confirmation of a price action signal, based on strong early signs that the move would continue.

For example, a trader may enter a position as soon as the first evidence of a breakout arises, taking on a little more risk in exchange for a possibly higher price.

Final Word

This glossary includes a wide range of technical analysis terms that are essential for traders. Whether you’re just getting started or refining your strategy, understanding these concepts—from the fundamentals of trends and support/resistance to the complexities of chart patterns and technical indicators—will help you evaluate market data more efficiently and make better trading decisions. Keep this guide handy as a reference to help you improve your technical analysis skills and stay ahead in the risky field of trading.

FAQs

What is technical analysis?

Technical analysis is the examination of past price and volume data to predict future market moves. It uses charts, patterns, and indicators to assist traders in identifying trends and making informed decisions.

How can technical analysis improve my trading?

Technical analysis helps you identify entry and exit points, control risk, and grasp market mood by means of chart patterns and indicators, including moving averages or RSI, so enabling you to trade more confidently.

What are some key technical indicators every trader should know?

Moving averages, the Relative Strength Index (RSI), MACD, Bollinger Bands, and the Stochastic Oscillator are among the most important indicators. These tools can help you determine trend strength, momentum, and probable reversal points.

Which chart patterns should I watch for in technical analysis?

Important chart patterns include head and shoulders, double tops and bottoms, triangles, flags, and pennants. These patterns signal possible trend reversals or continuations and guide your trading decisions.

How do I get started with technical analysis trading?

Begin by learning how to read basic price charts and recognise common indications and trends. Use a demo account to hone your skills and eventually establish a trading strategy that matches your risk tolerance and goals.