Beginner's Guide: Technical Analysis Without the Confusion
Support and resistance, moving averages, RSI, and MACD — what each one actually checks, in plain language, without unnecessary jargon.
What technical analysis does and doesn't do
Technical analysis reads price history and trading volume to identify trends and patterns — it doesn't analyze financial statements or try to understand the business itself. The basic idea is that the price already reflects all known information, so the price movement itself tells a story. It's a tool for timing and risk management, not a substitute for fundamental understanding of the company.
Support and resistance
Support is a price level where, historically, demand has tended to stop declines (the stock has 'bounced' off it a few times). Resistance is the opposite — a level where selling has tended to stop advances. A breakout above resistance on high volume is usually considered a positive sign; a breakdown below support — a negative one. These aren't exact lines but zones, and history doesn't guarantee it repeats itself.
Moving averages (SMA 50/200)
A moving average is simply the average price over a given period (50 or 200 trading days, for example), which smooths out daily volatility to show the overall trend. When the short average (50) crosses above the long average (200), it's called a 'Golden Cross' and considered a positive signal; crossing downward is called a 'Death Cross' and considered negative. Important to remember — these are inherently lagging signals (based on past prices), not forecasts.
RSI — Relative Strength Index
RSI (Relative Strength Index) ranges from 0 to 100 and measures the speed and magnitude of recent price movements. A value above 70 is generally considered 'overbought' (the stock has risen a lot and fast, a correction is possible), and a value below 30 is considered 'oversold'. But a stock in a strong trend can stay in overbought territory for a long period — RSI is a supporting signal, not an iron rule.
MACD
MACD (Moving Average Convergence Divergence) compares two exponential moving averages to identify momentum shifts earlier than regular averages. When the MACD line crosses above its signal line, it's considered a potential buy signal; crossing downward — a sell signal. Like any other technical indicator, it works best combined with additional indicators, not alone.
The bottom line
No single technical indicator is reliable enough to base a decision on by itself. The real value comes from combining several indicators together (exactly why StockIQ checks about 23 of them in parallel), and always alongside a fundamental understanding of the company itself.
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The information in this guide is intended for general educational purposes only and does not constitute investment advice. Full details on the disclaimer page.