- Technical analysis studies market behavior, primarily price, volume, volatility, and derived indicators, rather than the intrinsic value of a business.
- A chart pattern is evidence about past and current behavior, not a guarantee of future price direction.
- Indicators are transformations of market data; using many correlated indicators does not create independent evidence.
- Define signals before testing them and compare results after realistic costs, slippage, and false signals.
Rules, fees, tax treatment, plan features, market structure, and product terms can change. Use this framework as a starting point, then confirm current official documents and provider terms before acting.
Read the chart in layers
Higher highs/lows, lower highs/lows, or a range?
Where is price relative to prior reaction zones?
What does volume suggest about market activity?
How wide and unstable are recent price moves?
Trend lines are descriptions, not force fields
A trend line summarizes a path through prior prices. A break can be useful information, but it does not compel the market to reverse. Define how the line is drawn, what confirms a break, and how false signals will be handled.
Indicators compress data into a lens
Moving averages, momentum measures, RSI, MACD, and volatility bands can make certain features easier to see. They are derived from price or volume data, so they should not be treated as independent proof. Different lookback windows can produce different signals from the same market.
Turn observations into testable rules
“The chart looks strong” is not a rule. “Enter when price closes above a defined level with volume above a stated threshold; exit if condition X occurs” can be tested. The more discretion you use, the more detailed your decision journal needs to be.
Technical-analysis risk checklist
Would the signal have been visible in real time?
Were parameters selected because they fit the past?
Do spreads, turnover, and slippage erase the edge?
Does the signal behave differently in trends and ranges?