• Skip to primary navigation
  • Skip to main content
  • Skip to primary sidebar
  • Skip to footer

The College Investor

Student Loans, Investing, Building Wealth

  • About
  • Podcast
  • Research
  • Contact
  • Save For College
      • How To Start

      • How To Save For College
      • How To Pay For College
      • What Is the Average Cost of College?
      • What Is A 529 Plan and Where to Open One in Your State
      • How Much Should You Have In A 529 Plan By Age
      • How To Use A 529 Plan For Private Elementary And High School
      • What Are Qualified Expenses For A 529 Plan (And What Doesn’t Count)?
      • The Best Brokers To Open A 529 Plan
      • Tools + Accounts

      • 529 Plans: The Ultimate College Savings Plan
      • 529 Plan Contribution Limits
      • Prepaid Tuition Plans | What To Know
      • Understanding And Using 529A ABLE Accounts
      • Using A Roth IRA To Save And Pay For College
      • FAFSA Deadlines for Financial Aid
      • CollegeBacker Review
      • Upromise Review
      • UNest Review
      • Other Options

      • Student Loan And Financial Aid Programs By State
      • The Guide To Military And VA Education Benefits
      • How To Fill Out The FAFSA
      • How To Find College Scholarships
      • The Best College Scholarship Search Websites
      • How To Find Grants To Pay For College
      • Pell Grants: What They Are And How To Qualify
      • Understanding Federal Work-Study
      • How To Use A 529 Plan If Your Child Doesn’t Go To College
  • Student Loans
      • Borrowing

        • How Student Loans Work
        • How To Apply For A Student Loan
        • Best Student Loans And Rates In January 2023
        • 10 Best Private Student Loans Of January 2023
        • Best Student Loans To Pay For Graduate School
        • Best Student Loans To Pay For Medical School
        • Parent Loans To Pay For College
        • No-Cosigner Student Loan Options
        • Guide To Income Sharing Agreements (ISAs)
        • Best International Student Loans
      • Get Out Of Debt

        • Best Student Loan Refinance Companies In January 2023
        • Best Student Loan Repayment Plans
        • Best Student Loan Refinancing Bonuses And Promotional Offers Of January 2023
        • Student Loan Forgiveness Programs (The Complete List)
        • The Full List Of Student Loan Forgiveness Programs By State
        • Public Service Loan Forgiveness (PSLF)
        • Top Student Loan Scams
        • Average Student Loan Monthly Payment
        • Average Student Loan Debt By Year
      • Reviews

        • Credible Review
        • Splash Review
        • Ascent Review
        • Citizens Bank Review
        • Commonbond Review
        • Earnest Review
        • ELFI Review
        • Laurel Road Review
        • LendKey Review
        • SoFi Review
  • Investing
      • How To Start

        • How To Start Investing in High School
        • How To Start Investing In College
        • How To Start Investing In Your Twenties For 22 – 29 Year Olds
        • How To Start Investing In Your 30s For 30 – 39 Year Olds
        • How To Start Investing With $100 Or Less
        • How To Give Kids The Gift Of Stock
        • What Is Dividend Growth Investing
        • IRA Rollover Chart
      • Tools + Accounts

        • Best Online Stock Brokers
        • The Best Traditional And Roth IRA Accounts
        • The Best Robo-Advisors
        • The Best Investing Apps
        • The Best Places to Trade Options
        • The Best Places To Open A Health Savings Account
        • The Best Solo 401k Providers
        • The Best Self-Directed IRA Providers Of 2023
        • Best Cryptocurrency Exchanges
      • Reviews

        • Vanguard Review
        • Fidelity Review 2023
        • M1 Finance Review
        • TD Ameritrade Review 2023
        • Charles Schwab Review
        • Robinhood Review
        • Webull Review
        • Betterment Review 2023
        • Wealthfront Review
  • Earn More Money
      • Extra Income

        • 20 Best Side Hustles You Can Start Earning With In 2023
        • 53 Side Hustle Ideas To Make Money Fast
        • 100 Ways To Make Money In College
        • 80 Ways To Make Money From Home In 2023
        • 5 Quick Money Making Ideas (That Take Less Than 1 Hour)
        • 10 Interesting Ways You Can Make Money Driving
        • High-Paying Side Gigs That Earn $1,000 or More Per Month
        • The 10 Best Money-Making Apps
        • Paid Surveys: Earn Money For Giving Your Opinion Online
        • 10 Crazy Ways To Make $10,000 You’ve Never Heard Of
      • Build Wealth

        • 40 Passive Income Ideas You Can Use To Build Wealth In 2023
        • 3 Ways To Make $50,000 Per Year Without Working With Passive Income
        • How To Become A Real Estate Investor With Just $500
        • 15 Best Online Business Ideas
        • Residual Income: 7 Super Smart Ways to Build It
        • The Most Common Multiple Income Streams
        • How To Become A Real Estate Mogul With Only $10,000
      • Reviews

        • Fundrise Review
        • RealtyMogul Review
        • FarmTogether Review
        • AcreTrader Review
        • Swagbucks Review
        • Survey Junkie Review
        • TopCashback Review
        • DoorDash Review
  • Personal Finance
      • Banking

        • 10 Best High Yield Savings Accounts Of January 2023
        • 10 Best Money Market Accounts Of January 2023
        • 10 Best Free Checking Accounts In January 2023
        • Best Bank CD Rates Of January 2023
        • 10 Best Business Checking Accounts In January 2023
        • Best Online Banks Of January 2023
        • Best Credit Unions Nationwide Of January 2023
        • Best College Student Checking Accounts Of January 2023
      • Insurance

        • Best Life Insurance Companies
        • Renters Insurance
        • Car Insurance
        • Pet Insurance
        • Umbrella Insurance
        • Disability Insurance
        • Tuition Insurance
        • Travel Insurance
      • Credit Tools

        • Best Budgeting Apps
        • Cash Advance Apps
        • How To Get A Free Credit Score Report
        • Best Credit Monitoring Services For 2023
        • Debt Settlement: Inside The Secret World
        • Credit Repair Explained: Should You Pay For Help?
        • Best Personal Loan Companies And Lenders
        • Online Loan Companies To Borrow From Home
      • Tax

        • Best Tax Software
        • Free Tax Software
        • IRS Tax Refund Calendar
        • Common IRS Questions and Errors
        • Federal Tax Brackets
        • Capital Gains Tax Brackets
        • 401k Contribution Limits
        • IRA Contribution Limits
        • HSA Contribution Limits
  • Forum
  • Search
Home » Investing » Tools » Technical Analysis Of Stocks 101

Technical Analysis Of Stocks 101

Updated: December 12, 2022 By Robert Farrington

Tweet
Share
Share
Pin
Email
Print

At The College Investor, we want to help you navigate your finances. To do this, many or all of the products featured here may be from our partners. This doesn’t influence our evaluations or reviews. Our opinions are our own. Any investing information provided on this page is for educational purposes only. The College Investor does not offer investment advisor or brokerage services, nor does it recommend buying or selling particular stocks, securities, or other investments. Learn more here.Advertiser Disclosure

There are thousands of financial products and services out there, and we believe in helping you understand which is best for you, how it works, and will it actually help you achieve your financial goals. We're proud of our content and guidance, and the information we provide is objective, independent, and free.

But we do have to make money to pay our team and keep this website running! Our partners compensate us. TheCollegeInvestor.com has an advertising relationship with some or all of the offers included on this page, which may impact how, where, and in what order products and services may appear. The College Investor does not include all companies or offers available in the marketplace. And our partners can never pay us to guarantee favorable reviews (or even pay for a review of their product to begin with).

For more information and a complete list of our advertising partners, please check out our full Advertising Disclosure. TheCollegeInvestor.com strives to keep its information accurate and up to date. The information in our reviews could be different from what you find when visiting a financial institution, service provider or a specific product's website. All products and services are presented without warranty.

Technical analysis of stocks

Technical analysis of stocks is one of two main methods of analysis. The other is fundamental analysis. Technical analysis uses charts to identify entries, exits, trends, and the overall strength or weakness of a stock.

Another component of technical analysis is price projection. Traders use the information on the chart to predict where the price of a stock might go. Some traders have a lot of conviction that price will go to a specific point.  Others are more flexible about what prices may do.

In today's article, we'll look at some of the most common ways that traders user technical analysis of stocks to inform their trade decisions. In the examples below, I’ll be using charts from Yahoo Finance! Check out our favorite brokers and trading apps >>>

Table of Contents
Identifying Support
Identifying Resistance
Recognizing Trends
Using Technical Indicators
Final Thoughts

Identifying Support

A support area is usually a price range that the stock has come down to and then moves back above. In Image 1, below, the dashed horizontal line represents support.

Technical analysis of stocks

The price is just above 200. You can see that the stock has come down to this area three times. On the second move down, the price moved below 200. This appears to break the support area.

However, because the price quickly moved back up, the 200 area is still in play as support. Later, we get another test of this area, showing that it is an important area. This is an area that day or swing traders are likely to buy at, which is why the price keeps bouncing off of it.

There is a diagonal line as well, representing four more support areas. On this line, the price made higher lows. Once the line was drawn for the third support area around 210, it provided an area for a potential buy in the future.

Support doesn’t have to line up perfectly on the line. Some margin of error or a range can be used. That is what happened in the image below.

Identifying Resistance

Support is a price below the current market price while resistance is above. The significance of these numbers for technical analysis of stocks is that they represent areas where price has been rejected.

In Image 1 above, the resistance line (i.e., the solid horizontal line), isn’t lining up perfectly. But the line generally contains the low stock prices. This bit of vagueness can make defining support and resistance subjective, but they're usually fairly close.

Recognizing Trends

A trend is the overall direction or pattern a stock. When a stock is trending, it's either moving up or down. In the above image, MSFT did not trend for a while as it moved sideways. This is called consolidation.

The diagonal support line does show the beginnings of an upward trend, as the stock made four higher lows before breaking out of the horizontal channel. These higher lows were a precursor to a change in trend (or consolidation in this case).

And because higher lows are bullish, this gives a high probability that a break higher was coming and could be a good entrance point. Conversely, if the stock had been making lower highs, we might conclude that a break lower was coming and may consider exiting our position.

Related: Hone Your Technical Analysis Skills In A Paper Trading Account

Using Technical Indicators

A technical indicator is a formula-based indicator represented on a chart. Most technical indicators provide a metric for measuring the strength/weakness of a stock.

In the next image, we've made some additions to the chart. At the bottom of the chart is the RSI, which shows when a stock is overbought or oversold.

There are also two new lines. Both are moving averages (MAs). The red line is the 50-day, while the black line is the 200-day. These lines plot the average price over 50 and 200 days, respectively.

Technical indicators

The 50 MA is faster than the 200 MA. This means it sticks closer to the price. The 50 and 200 MAs are considered support and resistance lines by traders. In our MSFT example, the MAs considered support, although MSFT never reached the 200 MA.

Notice that the 50 MA is above the 200 MA. This configuration is considered bullish. At some point farther to the left, the 50 MA crossed above the 200 MA. For many traders, this is a signal to go long (i.e., buy the stock). The further above the 200 MA that the 50 MA is, the stronger the trend.

MSFT is in an upward trend. It is making higher highs and higher lows. The 50 MA is also far above the 200 MA, showing a strong bullish trend. This is further confirmed by the RSI.

When RSI moves above 80, it means the stock may be overbought. When it moves below 20, it means the stock is most likely oversold. With a reading of 66, MSFT is neither. According to the RSI, MSFT can continue up for longer. Right now, all of our indicators on the chart confirm that MSFT is in a strong upward trend.

Related: How To Scan For Trades Using ThinkorSwim

Final Thoughts

This was only an introduction to technical analysis of stocks. There are lots of additional technical indicators that can be added to a chart. Different indicators usually say the same thing but in different ways. 

It might seem like adding more indicators and lines to a chart can provide for better confirmations. But, in some cases, it can create confusion as the chart becomes too busy to really understand what is happening. Starting with a small number of indicators and getting used to them is usually better than splattering a chart with every indicator possible.

In the end, technical analysis isn’t a sure thing. But, used correctly, it can aid traders in their endeavor to make a profit. See all of our favorite free trading apps >>>

Robert Farrington
Robert Farrington

Robert Farrington is America’s Millennial Money Expert® and America’s Student Loan Debt Expert™, and the founder of The College Investor, a personal finance site dedicated to helping millennials escape student loan debt to start investing and building wealth for the future. You can learn more about him on the About Page, or on his personal site RobertFarrington.com.

He regularly writes about investing, student loan debt, and general personal finance topics geared towards anyone wanting to earn more, get out of debt, and start building wealth for the future.

He has been quoted in major publications including the New York Times, Washington Post, Fox, ABC, NBC, and more. He is also a regular contributor to Forbes.

Technical Analysis Of Stocks 101

Editor: Clint Proctor

Editorial Disclaimer: Opinions expressed here are author’s alone, not those of any bank, credit card issuer, airlines or hotel chain, or other advertiser and have not been reviewed, approved or otherwise endorsed by any of these entities.
Comment Policy: We invite readers to respond with questions or comments. Comments may be held for moderation and are subject to approval. Comments are solely the opinions of their authors'. The responses in the comments below are not provided or commissioned by any advertiser. Responses have not been reviewed, approved or otherwise endorsed by any company. It is not anyone's responsibility to ensure all posts and/or questions are answered.
Subscribe
Connect with
I allow to create an account
When you login first time using a Social Login button, we collect your account public profile information shared by Social Login provider, based on your privacy settings. We also get your email address to automatically create an account for you in our website. Once your account is created, you'll be logged-in to this account.
DisagreeAgree
Notify of

I allow to create an account
When you login first time using a Social Login button, we collect your account public profile information shared by Social Login provider, based on your privacy settings. We also get your email address to automatically create an account for you in our website. Once your account is created, you'll be logged-in to this account.
DisagreeAgree

0 Comments
Inline Feedbacks
View all comments

Primary Sidebar

Investing Resources

Featured Broker Reviews

>  Vanguard (recommended)
>  Fidelity
>  Robinhood
>  TD Ameritrade
>  M1 Finance
>  Schwab

Featured Robo-Advisors

>  Wealthfront (recommended)
>  Betterment
>  WealthSimple
>  Vanguard Digital Advisor

Annual Contribution Limits

  • 401k Contribution And Income Limits
  • IRA Contribution and Income Limits
  • HSA Contribution and Income Limits
  • 529 Plan Contribution Limits

More On Investing

  • Best Online Stock Brokers In 2023
  • Best Brokerage and Investing Bonus Offers In January 2023
  • Best HSA (Health Savings Account) Providers Of 2023
  • 5 Best Investing Apps Of 2023
  • How To Buy Stocks Online For Free
  • The Best Robo-Advisors Of 2023
  • The Best Self-Directed IRA Providers Of 2023
  • The Best Traditional And Roth IRA Accounts Of 2023
  • Comparing The Most Popular Solo 401k Options
  • Top 3 Automatic Investment Apps Of 2023

Footer

Who We Are

The College Investor is an independent, advertising-supported financial media publisher, focusing on news, product reviews, and comparisons.

Connect

  • Contact Us
  • Advertise
  • Press & Media

About

  • About
  • Our Team
  • Podcast
  • Editorial Guidelines
  • How We Make Money
  • Archives

Social

Copyright © 2023 · The College Investor · Privacy Policy ·Terms of Service · DO NOT Sell My Personal Information

wpDiscuz