Technical analysis (TA) is a method of forecasting future price movements based on:
TA assumes that everything is already reflected in the price - news, events, sentiment and expectations. That's why traders focus on the chart rather than fundamentals such as revenue, earnings, economic reports, etc.
Price includes everything
Prices move in trends
History repeats itself
Charts
Most commonly used:
1. Japanese candles
Japanese candlesticks represent one of the most used and effective forms of price movement visualization in technical analysis. They are not just a graphical representation, but an expression of market psychology and the struggle between buyers and sellers locked within each candle. Over time, it has become well established that candles offer an extraordinary wealth of information - as long as the trader knows how to read them.
Origins and history
Japanese candles trace their origins to 18th century Japan, where rice trader Munehisa Homa began using graphical methods to track rice price fluctuations. Homa noticed that emotions played a huge role in trading and created a system that captured not only the numbers, but also the mood of the market. Modern Japanese candles, introduced to the West by Steve Nison in the 1990s, are now used in all types of markets - stocks, currencies, cryptocurrencies, indices and more.
Structure of a Japanese candle
Each candle represents the price movement for a certain period of time - it can be a minute, an hour, a day, a week or a month. A candle consists of a body (body) and shadows (wicks or shadows):
This structure gives a visually clear and instantaneous reading of market behavior within a given time window.
What do the candles show?
Candles are a visualization of market dynamics, and most importantly, the emotions behind the move: fear, greed, uncertainty, momentum. They show:
Candles can form patterns and formations that traders use to anticipate future price movement.
Main types of Japanese candles
Key candle formations
Context and significance
Candles should not be viewed in isolation, but always in the context of the overall market picture:
The candles themselves offer extremely accurate and fast signals, especially when trading based on price behavior (price action). They are a preferred tool of traders who avoid over-reliance on complex technical indicators.
The Line Chart is one of the most basic and easy to understand methods for visualizing price movements in the financial markets. Despite its simplicity, it offers a clear view of the general direction of price over time, allowing the trader to quickly identify trends, peaks, troughs and important price levels. The line chart is particularly popular with beginners, but experienced analysts also use it as a basic reference tool before delving into more complex charts such as Japanese candlestick or bar charts.
What is a line chart?:
A line chart shows price movement by connecting individual price points with a straight
line. The
most commonly used value for each point is the closing price for the selected time
period - for example, day, hour or minute.
The reason the closing price is used is that it is considered the most important because it reflects
the final market valuation for that period.
For example, if you were analyzing a chart on a daily basis, each point on the line graph would
represent the closing price for that day, and the line would connect them in
sequence, showing
whether the price has risen or fallen over time.
Key Features
What is the line graph used for?
Advantages
Disadvantages
In technical analysis, the price movement of a financial asset is most often described by a sequence of impulses and corrections - this is the basic dynamic by which the market "breathes". This structure is not just random - it is a reflection of the way the market consensus is formed between buyers and sellers, and plays a key role in identifying trends, entry and exit areas, and risk management.
1. Momentum is a sharp and purposeful price movement in a particular direction, usually accompanied by high volume and strong momentum. This is the phase in which the market clearly shows the dominance of one side - be it buyers (in an upward momentum) or sellers (in a downward momentum). Momentum often occurs when important technical levels, such as resistance or support, are broken and is seen as the "driving force" of the trend. During an impulse, the price usually moves quickly, with little hesitation, and the candles in the chart are large, with small shadows - a sign of determination and activity
2. A correction, on the other hand, is a countermovement against the main trend direction. It is characterized by a less pronounced movement, often with declining volume and smaller candles. A correction is not a reversal of the trend, but rather a brief "pause" - a phase in which the market temporarily gives back some of the distance traveled to "refresh" momentum and allow new entrants to join in. Corrections often occur after a debilitating impulse and before the next one. They can take various forms - linear, lateral (consolidation) or more complex patterns such as flags, wedges and channels. The important thing about them is that they do not break the trend structure - in an uptrend the price makes higher highs and higher lows, and in a downtrend - the opposite.
This sequence - momentum→ correction→ momentum - builds the basic rhythm of the market structure and traders use it to look for opportunities. It is most common to enter a position at the end of a correction when there is a signal that it is over and a new impulse is starting. This allows to enter in the direction of the trend, but at a better price, with less risk and more potential. Corrections also allow the placement of logical stop-loss levels - for example below a previous low in an uptrend.
Momentum and corrections can also be analyzed using tools such as Fibonacci levels, which show how far the correction has retraced the move, as well as oscillators and volume indicators, which help determine when one phase ends and another begins. An experienced trader can tell the difference between a healthy correction and the beginning of a reversal - something that is key to making sound decisions.
3. Accumulation is a phase in the market cycle where the "smart money" - that is, the big institutional investors, banks and funds - begin to accumulate positions quietly and gradually, usually after a prolonged price decline. This is the point at which the general public is still negative on an asset, and the market appears "dead" or unattractive. But it is when most participants are in fear, uncertainty or apathy that professional players start to buy carefully - not aggressively, so as not to raise the price sharply, but in stages, within a certain range.
On the chart, the accumulation looks like a sideways movement (range), in which the price stays in a relatively narrow price corridor - it does not continue to fall, but it does not rise significantly. Volume is sometimes low, sometimes rising suddenly on purchases, but with no significant breakouts. This is a period of so-called accumulation of liquidity, in which institutions buy supply from sellers - who are often frustrated retail investors capitulating on the previous decline. The aim is to accumulate large positions at low prices without arousing suspicion or a price burst.
An accumulation phase usually precedes an uptrend. It is like the "momentum" before take-off. Once the accumulation is over, comes the moment of an impulsive breakout to the upside - often with strong volume and a sharp change in market mood. This is the signal that the "smart money" has already positioned and let the price "on the loose" as other market participants begin to join the upward movement, attracted by the new upswing.
Many traders seek out these accumulation phases because they allow for entry into a position at the beginning of a trend where the risk:reward ratio is most favorable. Recognizing accumulation requires patience and observation - it is often associated with the formation of bottoms with a double structure, consolidations, or formations such as a rectangle, wedge, flag, etc. One of the the most popular methods of analyzing accumulation is the Wyckoff (In the following courses you can see more about Wyckoff) method, which details how the process works - with stages such as maintenance, testing, false breakouts (spring), and exiting the zone (markup).
It is important not to confuse accumulation with simple lateral movement. True accumulation differs in the way price reacts to declines (often with a bounce), in the behavior of volume (volume increases on upswings and decreases on downswings), and in the lack of desire to break down - as if someone is "holding the price."
4. Distribution is the phase in the marketing cycle that is the mirror image of accumulation. This is the period when the price of an asset has already risen significantly, the market mood is extremely positive, and the majority of participants believe that the upturn will continue for a long time. It is in this environment of optimism and profit-seeking that the major institutional players begin to quietly and systematically sell off their accumulated positions - i.e. "distribute" their assets to the general public.
On the chart, distribution often appears as a sideways movement at the top of an uptrend. Instead of the price continuing higher, it begins to fluctuate in a relatively narrow range - not making new highs, but not falling sharply either. This consolidation is not accidental - it is the result of active selling by the "smart money" who do not want to cause a panic in the market. Instead, by manipulating volume and price, they seek to transfer risk to enthusiastic late buyers who get involved at the end of the trend.
One of the main signals of distribution is high volume on ups and downs, coupled with the inability of price to make new stable highs. This suggests that behind the "equilibrium" lies serious pressure from sellers. When institutions sell, they do so intelligently - they do not pour out large volumes at once, but sell gradually, using short price spikes, often artificially induced (through false breakthroughs or news events), to attract liquidity.
One of the main signals of distribution is high volume on ups and downs, coupled with the inability of price to make new stable highs. This suggests that behind the "equilibrium" lies serious pressure from sellers. When institutions sell, they do so intelligently - they do not pour out large volumes at once, but sell gradually, using short price spikes, often artificially induced (through false breakthroughs or news events), to attract liquidity.
The distribution phase can last days, weeks or even months, depending on the market and the scale of the movement. It is important to understand that the price does not stop rising due to lack of interest - on the contrary, in this phase the interest is huge, but it comes from less experienced participants attracted by "fomo" (fear of missing out). These participants often buy just as the institutions are selling to them - unaware that the price is close to its peak.
When the distribution ends, a strong and sudden break down often follows, accompanied by increasing volume - a sign that the pressure from sellers is now prevailing and buyers are disappearing. This is the beginning of a downtrend, and this is why distribution is critical to recognize - because it gives the trader a chance to get out before the decline, close their positions, or even prepare to short.
Like accumulation, distribution is discussed in detail in Richard Wyckoff's method, where it is described in phases: initial peak (Buying Climax), automatic reaction, testing the top (UTAD - Upthrust After Distribution), and break down (Markdown). Typical signs are the appearance of "exhausted" candles, the refusal of higher highs, the loss of momentum, and often - the presence of a "trap" for buyers through false upward breakouts.
Support in trading is a price level or zone where the pressure of demand (buyers) is strong enough to stop or slow the price decline. This is where market participants believe an asset is cheap or undervalued, and begin to buy, resulting in a reversal or at least a temporary halt to the decline. Support is not exactly a fixed value, but rather a price area where there is increased buying interest. When price reaches such an area, a reaction is often seen, either by a slowing of the decline or a bounce up. The reason this concept works has to do with the mass psychology and behavior of market participants - traders, institutional investors, algorithmic systems. Many of them use the same technical levels, which leads to a build-up of orders in similar areas. If price fails to break down support, this is considered confirmation of the strength of that zone, and often leads to an upward move. But if price breaks support with increased volume and momentum, this is considered a "support break" and can lead to an accelerated decline. Such a break is often retested, as the previous support turns into resistance. In practice, different approaches are used to determine support - horizontal levels, trendlines, moving averages, Fibonacci levels or high volume areas. It is also important to distinguish between "strong support" that has held up repeatedly, and "weak support" that has formed recently. Effectively reading and using support as a tool requires practice and an understanding of context - the trend, volume, and overall chart structure.
Finding support begins with careful observation of the chart and locating previous
lows - places where price has stalled its decline in the past and then rallied. If
this behavior repeats - that is, price pushes off the same level repeatedly - it is a strong signal
that significant support is there. The more often a level stops the price and causes a reversal, the
more sustainable this support is and the more important it is for the trader.
Like resistance,
support isn't always an exact number - it's often a price rangewhere there's a pool
of buyers waiting for the price to drop enough to enter the market. These may be traders looking to
"buy at the bottom", or larger institutions accumulating positions. Support is the "floor",
figuratively speaking, and acts like a floor plate - if broken, the price can fall much lower
because there is no meaningful demand below it.
Another way to confirm support is by using technical tools - for example, moving
averages (such as the 50, 100 or 200-day
moving average), which often act as dynamic support in an uptrend. In addition, Fibonacci
levels, especially 38.2%, 50% and 61.8%, often coincide with key areas of support.
Areas of high volume from previous price action can also indicate that there is historical buyer
interest - this can be detected through volume profile indicators.
Support can also occur at
psychological levels - round numbers like 1.00, 100, 1000, etc. - as many traders
place their orders at such levels. If a previous resistance is broken and the price overtakes it, it
often changes its role and becomes support. This is one of the most commonly used
principles in technical analysis - "previous resistance becomes new support" on a valid breakout.
The most important thing when analyzing support
is not just to see where price has spiraled, but how it has reacted. If a sharp
reversal, strong volume and an upward impulse has followed from a given level, it suggests that
there is a significant buyer presence there. Conversely, if on a new test the price fails to push
off with the same strength, it may suggest that support is weakening and a breakout is more likely.
Resistance in trading is a price level or zone where pressure from supply (sellers) is strong enough to stop or reverse the upward movement of price. This is an area where market participants begin to believe that an asset is too expensive or overvalued, and begin to sell, leading to a decline or consolidation. Resistance, like support, is not a specific price, but rather a range of values where increased selling interest is expected. The reason why these levels function is related to the mass behavior of market participants - traders, institutions and automated systems that rely on technical models and levels, often looking at the same charts. When price approaches resistance, we often see a slowing of the upward move or a reversal to the downside. If the resistance level holds, this confirms its strength and traders often use it as a signal to exit a long position or enter a short one. Conversely, if resistance is broken with momentum and increased volume, it can be a sign of strong bullish momentum and a continuation of the uptrend. After such a breakout, a so-called retest often occurs - when the previous resistance turns into new support. It is important to note that resistance is not a constant level - it can change as the market develops. Among the tools for determining resistance are horizontal lines of previous highs, trendlines, Fibonacci levels, areas of strong volume or technical indicators such as moving averages. The more times price bounces off a level, the stronger the resistance is considered. Knowing and properly using resistance enables the trader to make more informed decisions related to entries, exits and stop loss placement, and is a key component of successful technical analysis.
When looking at a chart of an asset, the first thing to do is to trace previous highs - places where
the price reached a certain level and then retreated downwards. If this has happened repeatedly, at
roughly the same price, it is a strong indication that there is active resistance there. The more
times the price has "tried" to break that level and failed, the stronger that "ceiling" is.
Visually, these levels often feature a sharp reversal or slowdown in the rise followed by a decline.
Resistance is not always a precise price - it is often a zone, not a specific line,
and extends over
a narrow range. These areas may see a clustering of sellers, limit orders or technical volume from
previous trading sessions. This is why traders often view "band" resistance - not as a point, but as
an area where there is selling pressure. Apart from purely visual observation of tops, resistance
can also be reinforced by other elements - for example, psychological levels (round
numbers such as
100, 1500, 20000, etc.), which often act as "magnets" for price and also trigger a reaction.
Another way to identify resistance is by using indicators such as moving averages
(e.g. 50 or 200-day MA), Fibonacci extensions or
previous gaps. If the price approaches such a technical element and starts to fluctuate, this
further confirms the resistance. Also, when there is a break of previous support,
it often becomes new resistance - this is the principle of "role reversal" known in technical
analysis.
It is important to note that the detection of resistance is not a one-time act, but a process that
requires observation and judgment. Over time, through the accumulation of experience, the trader
develops a sense of which levels are significant. And when these areas are confirmed by market
behaviour - for example, by forming formations such as double tops, pin bars or bearish candles at a
key level - it gives a strong signal of a potential reversal or slowdown in the upward movement.
Ultimately, resistance is where buyers encounter counter-pressure, and therefore its accurate
identification is essential for successfully planning exits, stops or even position reversals.
An uptrend is a period of sustained increase in the price of a financial asset, whether it is
equities, cryptocurrencies, currency pairs or commodities. This upward movement does not occur
linearly, but is characterised by a series of successively higher highs and
higher lows. It is this structure that is the heart of the uptrend - it shows that
buyers are systematically outnumbering sellers and maintaining control of the market.
The beginning of an uptrend usually comes after a consolidation phase or after a period of decline
when signals of a change in mood appear.
Buyers begin to actively enter the market, creating upward pressure on the price. Once the price
reaches a new high, it naturally corrects down slightly, but stops before falling to the previous
low - this creates a so-called higher low.
From there, price strengthens again, passing the old high - and so the pattern repeats.
During an uptrend, there is usually a growing interest in the asset - increased trading volume,
increased media activity and new entrants. Traders often use trend lines to plot
the slope of the move, and monitor the support levels that form at each new higher
low. These are the areas where price finds stability and from which it often bounces up.
Uptrends are a preferred time for so-called "bullish" traders (those who bet on growth) to enter the
market because market momentum works in their favor. In such a market, strategies such as "buy on
correction" are applied,
where the trader enters a position when the price temporarily falls within the overall upward
movement.
It should be borne in mind that no uptrend lasts forever. Over time, the energy behind the rise runs
out, buyers become more cautious, and sellers begin to resist. When price fails to make a new higher
high and instead breaks the last higher low, it could be a signal that the trend is reversing or
going sideways
A downtrend in trading describes a period in which the price of a financial asset declines steadily
over time. Unlike temporary declines within a rising market, a downtrend is characterized by
structural weakness - a series of lower highs and lower lows that
indicate that sellers consistently outnumber buyers and move the market lower.
This type of trend usually starts after a top phase where buyers lose strength and sellers start to
take control. This often happens after the formation of key resistance or after disappointing
fundamental news. Once the price starts to fall and fails to recover its previous highs, the first
lower high is formed - a classic signal that the trend may be reversing. If the next low is also
lower than the previous low, the start of a downtrend is confirmed.
During such a trend, the general market mood is rather negative - investors and traders become more
cautious, and market risk is perceived as increasing. Trading volumes often increase during downward
movements, indicating strong pressure from sellers. In this environment, any short-term upward
correction is perceived as a temporary opportunity for further depreciation rather than the start of
a recovery.
Traders who work with downtrends - so-called "bearish" traders - often use short
selling to take
advantage of the downturn. They observe price structures in which price tests new resistance
(usually an old support level that has been broken), then goes down again. Such scenarios are seen
as confirmation that the downtrend is active and likely to continue.
In a downtrend, the key element is the resistance line that is drawn at the tops of
the movement. It
often serves as a visual boundary from which price bounces down. Along with this, traders use
various technical tools such as moving averages, volume, indicators such as RSI or
MACD to confirm
the strength of the trend.
It is important to know that the downward trend also does not last forever. At some point the price
reaches a level where sellers run out of energy and buyers start to show interest. This can lead to
consolidation (sideways movement) or even a trend reversal if higher highs and
higher lows start to
form.
The trend line is one of the most basic yet powerful tools in technical analysis used to visualize and confirm the direction of price movement. It is a diagonal line that connects successive highs or lows on the chart, depending on whether we observe an uptrend or a downtrend. In an uptrend, the trend line is drawn by connecting successive higher lows and used as sloping support - that is, price is expected to bounce up from this line. In a downtrend, by contrast, the line runs through successive lower highs and acts as sloping resistance - the area from which price is likely to retreat lower. The trend line is not strictly a mathematical tool - it is a visual tool that allows the trader to assess the momentum and structure of the market. A well-drawn trend line reflects the current market mood and allows one to predict the potential behavior of the price, especially as it approaches that line. It is important that the line connects a minimum of two or three tops or bottoms to be considered significant. The more times price interacts with the trend line without breaking it, the more reliable it becomes. Breaking a trend line is often taken as an early signal of a possible change in trend - especially if the break is accompanied by increased volume or confirmation from other indicators. In addition, many traders use parallel lines to build a so-called channel, in which the price moves between a trend line and an opposite boundary. This also allows more precise inputs and outputs from positions. Despite its simplicity, the trend line requires attention because drawing it correctly is not always obvious, especially in more dynamic or volatile markets. In the hands of a disciplined trader, however, it is an extremely effective tool to help keep trading in sync with market direction and avoid premature entries against the trend.
Drawing a trend line is one of the most fundamental yet practical skills in technical analysis.
Despite its simplicity, a properly drawn trend line can provide strong clues to market direction,
help identify entry and exit areas, and serve as dynamic support or resistance.
A trend line is simply a straight line that connects key extremes in price movement - be it rising
lows in the case of a rising trend or falling highs in the case of a falling market. The most common
practice is to use
the lowest or highest points of the candles (wicks) rather than just their bodies to
reflect the full price reaction. This allows the line to be as accurate as possible in capturing the
market structure.
In the case of an uptrend, the trend line is drawn below the price, connecting at least two
consecutive lows where the price has made a correction and then recovered. If a third low is found
that touches the same line, this is an even stronger sign that the line is valid and reflects a real
trend in the sentiment of the participants. The line acts as sloping support - it keeps price
movement from deeper declines, and traders often look to open long positions when it is touched.
Conversely - in a downtrend, the trend line is placed above the price, connecting successive lower
highs where the upward movement has been limited before a new decline ensues. This line acts as an
oblique resistance and serves as a potential short entry area if price touches it and starts falling
again.
It is important to understand that trend lines are not mathematically accurate as an indicator, but
rather a visual representation of the skew structure of the market. They don't always have to go
through absolutely every point - it's more important that the line clearly reflects the slope and
direction of movement. In more volatile markets a zonal interpretation can be used, with the line
representing a range rather than a precise boundary.
A trend line that has been tested three or more times without being broken is considered
particularly reliable. If price breaks it convincingly - with increased volume or a clear close
below/above the line - this is often seen as a signal of weakness in the current trend and
potentially the start of a new direction. This is why trend line breakouts are so closely watched -
they not only indicate a change in momentum, but often lead to significant moves.
Drawing trend lines can be combined with other tools - such as moving averages, indicators like RSI,
and shapes like channels or triangles - to build more reliable strategies. But even on its own, a
well-drawn trend line can provide an excellent basis for understanding market logic.
A channel in trading is a formation in which the price of an asset moves in a clearly defined range
between two parallel lines - an upper line of resistance and a lower line of support. This movement
resembles a tunnel or a path along which the price "walks", and traders use it to predict likely
reversal areas, trend continuations or potential breakouts. Channels can be ascending (where both
lines are rising), descending (both lines are falling), or horizontal (price is moving in a sideways
range). Ascending
The channel consists of successive higher highs and higher lows, with the support line running along
the lows and the resistance line running along the highs. The descending channel is a mirror
reflection - successive lower highs and lower lows, the movement is down and the upper line acts as
resistance. In a horizontal channel, price oscillates between nearly equal levels without a clear
trend, and it often signals consolidation before a future breakout in either direction.
Traders use channels in several ways. One of the most common approaches is to buy near the lower
boundary (support) of the channel and sell near the upper boundary (resistance) as long as price
remains in the channel. If there is a break outside the channel, especially accompanied by increased
volume and momentum, this is often taken as a signal of a potentially stronger move in a new
direction. An upside breakout from an ascending channel may indicate an acceleration of the rise,
while a downside breakout from a descending channel may confirm the strength of the bearish trend.
Also, many traders use channels to place stop-loss orders outside its boundaries or to plan profit
targets.
Drawing a channel requires patience and observation - often a trend line is drawn first, and then a
parallel line is added, passing through the opposite points. The more accurately and consistently
price respects the boundaries of the channel, the more reliable it is as an analysis tool. Channels
help to visualize not only the direction of movement but also the structure of the market, giving an
advantage to the disciplined trader who uses them to confirm strategies and manage risk.
Volume, or so-called volume, is one of the most important and commonly used indicators in technical
analysis, as it measures how many units of an asset have been traded over a certain period of time.
This can apply to stocks as well as currencies, cryptocurrencies or futures. Volume does not
indicate the direction of price movement per se, but it provides extremely valuable information
about the strength and validity of that movement. When the price of an asset rises and is
accompanied by increased volume, this is usually seen as a sign that the movement is backed by real
interest and is sustainable. Conversely, if the price rises on low volume, this is often interpreted
as weakness or temporary momentum that may soon be corrected.
In the context of technical analysis, volume serves as a "reinforcing filter" for the signals that
the trader receives from the chart. Breakouts of important technical levels - such as support,
resistance or trend lines - are considered more reliable when accompanied by strong volume, because
this indicates the participation of more market participants and confirms the validity of the
breakout. If a breakout occurs on low volume, it often signals a false breakout and can lead to a
sudden reversal. Volume also helps to recognize accumulation phases
(accumulation) and distribution (distribution) phases, where smart money enters or exits a position
- even without sudden price movements.
There are also a number of volume-based technical indicators, such as On-Balance Volume
(OBV),
Volume Weighted Average Price (VWAP) and
Accumulation/Distribution Line. These add additional dimensions and allow more
sophisticated
analysis of the relationship between volume and price movement. In addition, volume profiles, which
show accumulated volume at different price levels (rather than by time), are widely used to identify
areas of high market activity and potential areas of support or resistance.
It is important to note that volume can be interpreted differently depending on the type of market -
for example, in equities volume is an absolute value, whereas in forex so-called tick volume is
often used as there is no centralised exchange. In all cases, however, the basic principle remains
the same: volume indicates how much
"commitment" is behind a movement and helps the trader to distinguish real signals from market
noise. Combined with price behaviour, volume is an extremely powerful tool for
confirming trends, understanding market dynamics and building robust entry and exit strategies.
Liquidity in trading is the ability of an asset to be bought or sold quickly and without significant
price deviation. It is one of the most important aspects of financial markets because it determines
how easily traders can enter and exit positions. High liquidity means that there are many buyers and
sellers ready to make trades, resulting in a smaller spread between the bid and ask prices, lower
volatility and less risk of unwanted price deviations. On the other hand, low liquidity leads to
more risk and less predictability because even small orders can cause large price movements.
On a chart, liquidity is not directly visible as a line or indicator, but its presence can be
recognized by trading volume, the speed of order execution and the structure of price movement. When
an instrument has high liquidity - for example, major currency pairs
such as EUR/USD or popular stocks such as Apple - trades are executed instantaneously without
significant price movement. This allows traders to act with precision, especially in scalping or
short-term strategies where every point counts.
In terms of market logic, liquidity is also a goal for many institutional participants. They look
for places on the chart where orders are located because that is where they can fill their volumes
without causing a sharp spike or drop. Such places are usually stop accumulations, areas of support
and resistance, or tops and bottoms where "liquidity traps" are located. When price reaches these
levels, quick, sharp moves - false breakouts or reversals - are often seen because large
participants use the available
liquidity to fill their orders. This explains why we often see manipulations around important levels
- they are not random, but aimed at reaching the liquidity for the market to "feed" the big players.
Liquidity also plays a critical role during news releases. When major economic events or reports
(such as NFP, interest rate decisions, etc.) occur, the market can temporarily lose liquidity, which
translates into sudden price spikes, large spreads, and order execution difficulties. At such times,
the risk to traders is significantly increased, and this requires additional caution in managing
positions.
For trading, liquidity means certainty and predictability. It allows quick entry and exit from the
market, reliable execution of strategies, and reduction of trading costs (through smaller spreads
and better transaction costs). Without liquidity, the market is inefficient - no matter how good a
trader's strategy is, if there is no one to buy or sell at a given price, it remains unexecuted or
is executed under adverse conditions.
In conclusion, liquidity is like the "blood" of the market - without it, trading slows down, risk
increases and market efficiency is destroyed. Traders need to understand, monitor and respect it
because it is the invisible engine behind price movements and the possibility of profit or loss
Fibonacci retracement is a tool of technical analysis used to predict potential
support and resistance levels during corrections within a larger trend. It is based on the Fibonacci
sequence, a
mathematical sequence in which each successive number is the sum of the previous two (e.g. 0, 1, 1,
2, 3, 5, 8, 13...).
From this sequence, certain percentages are derived and used in trading - most
often: 23.6%, 38.2%, 50%, 61.8% и 78.6% (50% is not part of the series itself, but
is traditionally
used as a "psychological" midpoint of movement).
When the market has a clear upward movement (momentum) and then a
correction begins, traders use
Fibonacci retracement to determine to which levels the price can return before resuming the main
trend.
The same is true in a downtrend - on a bounce up (correction in a downtrend), the Fib levels
indicate where the correction may end and a new downward impulse begin.
If the price of an asset has jumped from 100 to 200, and then begins to fall, the Fibonacci retracement levels will show:
These levels are being watched by traders for a potential end to the correction and a new uptrend
Fibonacci retracement is not a "magic number", it works because:
Best results when combined with:
Price action is a method of analyzing the price movement of an asset based solely on its historical
behavior on the chart, without the use of indicators, oscillators or automated signals. It is one of
the purest and most direct ways to understand how the market reacts in real time, based on price
itself - its shapes, structure and consistency.
Traders who use price action believe that all the necessary information is already contained in the
price movement itself - including market sentiment, volume, news and participants.
The basis of this approach is the observation and interpretation of candlesticks and the formations
they form. By deciphering sequences of candlesticks and where they lie in the context of a chart, a
trader can infer whether the market is in a moment of strength, weakness, indecision or a change in
direction. The most commonly used signals include pin bars, inside bars, engulfing patterns and
other shapes that visualize the battle between buyers and sellers.
Context is key in price action analysis - the same formation has a different meaning depending on
whether it is at support, resistance, within a trend or in consolidation. Price action traders pay
attention not only to the formation itself, but also to its location, the volume with which it was
created, and subsequent price behavior. They rely on the ability to understand the market psychology
behind every move - whether it is the result of panic, greed, accumulation or manipulation.
Trading through price action requires discipline, patience and the ability to interpret market
signals without bias. It is an approach that removes the "noise" from the multitude of technical
indicators and focuses attention on what is most important - what is actually happening in the
market. By observing the structures of highs and lows, momentum and correction, the trader builds a
narrative of price movement in which he can
can navigate not only where it is now, but also where it is likely to go next. In this sense, price
action is not just a method of analysis, but a holistic way of thinking in trading.
Supply in trading is the concept associated with the levels at which significant
volumes of sellers
appear in the market ready to execute trades that stop or reverse the upward movement of price. This
is not a fixed value, but rather an area in which there is a concentration of sell orders that
exceed the willingness to buy. The result is a halt in growth, a trend reversal, or at least a
short-term correction. In this sense, the supply zone is a natural resistance formed not by the
chart line but by the behavior of market participants.
This zone is often formed as a result of a previous aggressive decline, after which the price
returns to the levels from which the decline began. This is where the "smart money" is -
institutional traders or big players who have previously sold massively and are now waiting for
another opportunity to do the same.
When the price approaches the supply zone, these participants often start selling again, placing
pending orders or defending their previous positions, which leads to an increase in downward
pressure.
Supply is not identified by a single peak or a single candle. It is usually an area where there is a
sharp shift in the balance between buyers and sellers - often in the form of strong bearish candles,
sharp reversals and volumes that indicate active resistance to further growth. Traders who trade a
supply and demand methodology are not interested in classic indicators - they are looking for the
visual and behavioral signals that at a certain price level the market logic is changing.
When the supply zone is reached, a reaction is observed - this can be an immediate reversal, a
slowdown of the upward movement or the formation of a consolidation. In some cases, the price may
temporarily break the zone, only to bounce back - a phenomenon known as a "false breakout", which
often confirms the validity of the supply zone. It is these behavioral patterns that the trader must
learn to recognize and interpret in the context of the overall price movement.
Supply does not exist in isolation. It should always be analyzed along with the rest of the chart -
where the price is relative to previous highs and lows, what the current trend is, are there signs
of buyers running out. Often supply zones also serve as opportunities to place stops, set targets or
plan entries for short positions. In other words, understanding supply is a key element of overall
price behavior and a trader's ability to see not just what is happening, but why it is happening.
How to find it on the chart?
Spotting a supply area on a chart requires observation and an understanding of how
market
participants behave in certain price areas. Supply zones are formed where there has previously been
a sharp price decline, often preceded by a small consolidation or a brief price hold at a certain
level. This hold indicates that sellers have begun to aggressively enter the market, outnumbering
buyers, resulting in a strong downward movement.
To find the supply zone visually, first look for a section of the chart where the price has made a
sharp and strong decline - an impulsive move down with large bearish candles (red). Go back one step
and see from which level this movement started - the area just before this drop is the potential
supply zone. This is usually the last consolidation or the
last few candles that were sideways or slightly bullish before price abruptly reversed down.
Once you identify this zone, you can mark it with a rectangle encompassing the body and shadows of
the last 1-3 candles before the impulse down. This is where there has been significant supply in the
past, and if this zone is reached again in the future, there is a high probability that strong
resistance will reappear - i.e. sellers will step in and push price down.
It is also important to observe how the price behaves when it reaches this zone again - whether it
immediately reacts with a rejection, whether it makes a "false breakout", or whether it simply holds
and trading volumes increase. All these signals can confirm that the zone is valid and active.
Combined with the context of the trend, price behavior and possibly other tools such as volume or
candlestick patterns, a trader can use these zones to strategically plan entries, exits or protect
positions.
Demand in trading is a concept that describes the areas on a chart where strong
buyers are activated
and price begins to rise due to demand outweighing supply. This is not just a fixed level, but
rather a price zone where buyers begin to dominate and put upward pressure on the price. Demand
zones are formed as a result of previous strong upward movements that started from relatively stable
or consolidative behavior that was followed by impulsive growth. These zones act as areas of
support, where price on re entry often reacts with a recovery and reversal upwards.
Technically, demand zones occur when the price has reached a certain level and then risen sharply
with large bullish candles (green) indicating buyer dominance. If the price subsequently moves back
to this zone, many market participants - especially institutional traders or so-called "bulls" -
will be in a bullish position.
"smart money" - often reactivate because it falls at a level that has already proven attractive for
buying. This leads to new impulses to the upside.
Discovering a demand zone starts with looking at the last sharp upward impulse and tracing from
which part of the chart that move started. The zone,
which is located immediately before the surge - usually a small consolidation or the last 1-3
candles before the start of the rise - is considered a potential demand zone. It is marked visually
with a rectangle encompassing the bodies and shadows of the respective candles, and is used as an
area of interest where the trader will watch for confirming signals in the event of a price
pullback.
When the price returns to such a zone, it often shows a reaction: slowing down the decline, forming
bullish candles or consolidation with increased volumes. Sometimes a false breakout also occurs,
where the price breaks below the zone briefly, only to move back up - this is an additional sign
that there is real demand at this level and that the zone remains valid.
Demand zones do not work on their own. To be effective in analysis and practical trading, they must
be considered in the context of the current trend, candlestick patterns, volatility and volumes.
When price is in a downtrend and reaches a demand zone, the reaction there may be a temporary
reversal or the start of a deeper correction. At the same time, in an uptrend, such a zone is often
used to confirm the trend and find a good entry.
Trading against demand zones requires discipline and an understanding of market logic. They are not
magic levels, but the result of market participants being active and seeing value in a particular
price. If a trader can recognize not only the visual formation, but also the logic behind it - who
is buying, why and when - he can use demand zones as a powerful tool to make decisions and improve
trading results.
This course introduced you to the fundamentals of trading - the foundation on which every trader's
successful career is built. We covered key concepts such as trends, momentum and retracements,
support and resistance levels, as well as different chart shapes, indicators and price candle
behaviour. All of this knowledge is not just theory - it is practical tools that a trader uses to
understand and read the market.
It is important to emphasize that without a firm grasp of these fundamentals, trading in the
financial markets becomes an uncertain and often unprofitable activity. Lack of knowledge of basic
principles leads to impulsive decisions, misinterpretation of market dynamics and, ultimately, to
losses.
Real progress in trading starts with understanding the fundamentals. Only once it is mastered and
applied with discipline and consistency can more complex strategies, automated systems or
large-scale portfolio structures be considered. Every successful trader has been a beginner - but
every professional has perfected precisely these basic elements.
This is not the end of the road, just the beginning. The knowledge gained from this course is your
compass in the market world - use it wisely, practice with patience and strive for continuous
improvement.