--- title: "Technical analysis: what price history can tell you" description: "Technical analysis in plain words: chart types, trend, support and resistance, technical indicators, chart patterns and why good backtests mislead." canonical: https://thetraderwiki.com/en/technical-analysis/ lang: en kind: article published: 2026-09-05 updated: 2026-10-12 author: "Gabriel L." (https://thetraderwiki.com/en/authors/gabriel-l/) html: https://thetraderwiki.com/en/technical-analysis/ json: https://thetraderwiki.com/en/technical-analysis/index.json --- # Technical analysis: what price history can and can’t tell you [Home](https://thetraderwiki.com/en/) › [Guides](https://thetraderwiki.com/en/learn/) › [Technical analysis](https://thetraderwiki.com/en/technical-analysis/) Technical analysis means studying past prices and trading volumes in the hope that they say something about future prices. On a [CFD](https://thetraderwiki.com/en/glossary/#cfd) platform, this is the default way to view a market. A CFD is a contract with a provider that pays out the difference between the price when you open a trade and the price when you close it. Every platform includes charts and indicators, but none includes a company’s balance sheet. The method is useful for describing where a market has been and for deciding where to place orders. It’s much weaker at predicting where the market will go. This page covers what price history can and can’t tell you, the main chart types, and the concepts of trend, support and resistance, and volume. It also examines the families of indicators and the weakness they all share, as well as how to read several timeframes at once. Last, it explains why a [backtest](https://thetraderwiki.com/en/glossary/#backtesting) that looks good usually isn’t. A backtest runs a trading rule over old prices to see how it would have done. ## Key points - Price history is a record of what happened. It doesn’t explain why, and it contains no information about events that haven’t happened yet. - Support and resistance are price levels where trading has bunched up before. They help you decide where to place orders, whether or not they predict anything. - All indicators are calculated using past prices. Because of that, each one lags and only reveals a market turn once that turn has begun. - Looking at several timeframes together stops the most common mistake. That mistake is trading a signal on a short chart against the trend on a longer one. - A backtest tells you how a rule would have performed on past prices. Run it on the same data you used to choose that rule, and the stronger the result looks, the more likely you’ve fitted the rule to random noise. A test is worth something only on data the rule never saw. ## What price history can and can’t tell you You can see where a market has traded by looking at its price history, and you can also gauge how far it usually moves in a day. The same history shows whether recent moves have gone mostly one way and where buying and selling have bunched up. All of these are facts about the past, and each one has a use on a CFD platform. Knowing the usual daily range helps you place your [stop-loss](https://thetraderwiki.com/en/glossary/#stop-loss), the price at which you’ve decided to get out, at a sensible distance ([risk management](https://thetraderwiki.com/en/risk-management/#position-sizing)). Places where trading bunched up before hint at where other people’s orders may sit. The direction of recent moves is what a trend-following rule trades on ([trading strategies](https://thetraderwiki.com/en/trading-strategies/#trend-following)). Price history can’t tell you what a central bank will decide, what a company will report or whether a producer will cut supply. No trace of those events appears in the price before they happen ([fundamental analysis](https://thetraderwiki.com/en/fundamental-analysis/)). Technical analysis makes one big claim: that patterns in past prices predict future prices well enough to cover the costs of trading. Nobody has shown this in a form that stands up to the costs of a retail CFD. Meanwhile, the loss rates regulators report belong to clients of providers whose platforms all supply these same tools ([ESMA press release, 27 March 2018](https://www.esma.europa.eu/press-news/esma-news/esma-agrees-prohibit-binary-options-and-restrict-cfds-protect-retail-investors)). ## Chart types Chart types show different amounts of what happened inside each period. More than most traders realise, the type you pick alters how a pattern appears. - **Line chart**: A line connects the closing price for each period, giving the clearest view of a trend. It hides the range within each period, so it understates [volatility](https://thetraderwiki.com/en/glossary/#volatility): how much the price swings about. - **Bar chart**: Each period has one vertical bar stretching from its low to its high. Small ticks mark the opening and closing prices. The bar shows the range of the period and its direction. The bar chart is the traditional way to display open-high-low-close data. - **Candlestick chart**: A candlestick carries the same four prices as a bar but draws them differently. A thick body spans from open to close, and thin wicks extend to the high and low. The colour shows whether the price rose or fell. It’s the default on most CFD platforms, and you read the named [candlestick patterns](https://thetraderwiki.com/en/chart-patterns/#candlestick-patterns) from it. - **Tick and range charts**: Charts that begin a new period once there’s a set count of trades or a set size of price move, whatever the clock says. They squash quiet periods and stretch busy ones, and that changes how every pattern and indicator looks. - **Logarithmic scale**: A price axis where the same vertical distance always means the same percentage move. On a standard linear axis, that same distance shows an identical change in price. For a market that has moved a long way, a trend line drawn on each kind of axis will point to different places. ## Trend, support and resistance, and volume Trend, support and resistance, and volume are the foundations of nearly all technical analysis. Each one shows what the market has already done. None of them tells you what it will do next. ### Trend A trend is a sequence of higher highs and higher lows, or lower highs and lower lows, on whatever timeframe you pick. You can only identify a trend once it has begun, and you can only declare it finished once it has ended. That’s why trend-following strategies get in late and get out late, by design. A trend line is drawn through the lows of an uptrend or the highs of a downtrend, and is a drawing, not a law ([chart patterns](https://thetraderwiki.com/en/chart-patterns/)). ### Support and resistance [Support](https://thetraderwiki.com/en/glossary/#support-and-resistance) is a price where past falls have stopped and buyers have stepped in. Resistance works the same way upside down, as a price where past rises have stopped and sellers have taken over. Because other traders watch the same levels and put their own orders around them, both help you place your orders. Both also break often, and a breakout strategy waits for exactly that break ([trading strategies](https://thetraderwiki.com/en/trading-strategies/#breakout)). A level that has been tested several times isn’t stronger or weaker for it in any way anyone can measure. Such a level is just easier to see. ### Volume Volume is the amount traded over a given period. For anything traded on an exchange, volume reveals whether a move had broad participation. A CFD lacks a central volume figure. Your provider’s volume counts only its own business, while a share or index chart displays the volume from the exchange where the underlying trades. Currency pairs have no exchange at all, so charts count price changes (ticks) instead, and that count measures activity, not the amount traded. ## The indicator families and their shared weakness Indicator families are sets of calculations based on past prices. All of them share the same weakness: each one uses what has already happened to build its result, so each one lags. *The main indicator families, what each measures, and where each fails.* | Family | Examples | What it measures | Where it fails | | --- | --- | --- | --- | | Trend | [Moving averages](https://thetraderwiki.com/en/technical-indicators/#moving-averages), [MACD](https://thetraderwiki.com/en/technical-indicators/#macd) | Which way prices have moved lately, and how steadily | Sideways markets, where it signals both ways and you pay the [spread](https://thetraderwiki.com/en/glossary/#spread) (the gap between the buy and sell price) each time | | Momentum | [RSI](https://thetraderwiki.com/en/technical-indicators/#rsi), [stochastic oscillator](https://thetraderwiki.com/en/technical-indicators/#stochastic) | How fast prices have moved compared with their recent range | Strong trends, where it can read overbought or oversold for weeks | | Volatility | [Bollinger Bands](https://thetraderwiki.com/en/technical-indicators/#bollinger-bands), [average true range](https://thetraderwiki.com/en/technical-indicators/#atr) | How big recent moves have been | Predicting direction: it doesn’t try to | | Volume-based | [On-balance volume](https://thetraderwiki.com/en/technical-indicators/#obv), volume profile | How many people took part in a move | CFDs, which have no central volume figure | | Pattern-based | [Head and shoulders](https://thetraderwiki.com/en/chart-patterns/#head-and-shoulders), [flags](https://thetraderwiki.com/en/chart-patterns/#flags-and-pennants), [triangles](https://thetraderwiki.com/en/chart-patterns/#triangles) | Shapes in past prices | Ambiguity: traders read the same shape in different ways, and it’s only confirmed in hindsight | Combining indicators from different families doesn’t remove the lag, because all of them are worked out from the same past prices. What it does is add conditions. You end up with fewer signals and a backtest that looks cleaner, but the next signal is no more reliable. For each indicator named in the table, the [technical indicators](https://thetraderwiki.com/en/technical-indicators/) page gives the formula, the usual settings and the weakness. ## Reading several timeframes together Reading several timeframes together means checking a market on a longer chart before you act on a shorter one. Doing that stops you from following a signal on a five-minute chart that goes against the daily chart. It doesn’t make the signal reliable, but it removes the most common mistake: treating a small dip or bounce as if it were a full reversal. On a CFD, short timeframes also carry a hidden cost, because the shorter you hold a trade, the bigger the spread is compared with the move you expect to catch. Below some timeframe, the spread is bigger than the move itself ([costs and fees](https://thetraderwiki.com/en/costs-and-fees/#spread)). ## Overfitting and backtest illusions [Overfitting](https://thetraderwiki.com/en/glossary/#overfitting) means tailoring a rule so tightly to one set of past prices that it fits their random noise. A backtest is the ideal place for this to happen. Say you test twenty combinations of indicator settings on five years of data and keep the best one. You haven’t found a rule. The best of twenty random rules will look good on the data used to pick it, and on new data it will do what a random rule does. Backtest illusions add up. Backtests usually leave out the spread, financing, wider spreads around news and [slippage](https://thetraderwiki.com/en/glossary/#slippage). Slippage means you get filled at a different price from the one you asked for, usually worse and sometimes better. A live trade pays every one of those costs ([demo accounts](https://thetraderwiki.com/en/demo-accounts/#why-demo-overstates)). Only if a backtest runs on data the rule never saw and includes every cost is it worth something. Even then, the result you get is the best case, not a forecast. A rule can also stop working the moment enough traders start using it. Backtested or not, every rule has to pass the arithmetic after costs that the [trading strategies](https://thetraderwiki.com/en/trading-strategies/#expectancy) page shows. ## Questions about technical analysis Questions about technical analysis mostly come down to what it is, whether it works and which tool is the most accurate. ### What is technical analysis? Technical analysis studies past prices and trading volumes to judge where a price may go next. It relies on charts, price levels, indicators and patterns, and ignores the economic reasons behind a move. It describes where a market has been much better than it predicts where the market will go. ### Does technical analysis work? Technical analysis works as a way to describe a market and to decide where orders go. Nobody has shown that its signals predict prices well enough to cover the costs of a retail CFD. Every signal is worked out from past prices, so it can’t see news that hasn’t happened yet. ### What is support and resistance? Support is a price that halted past declines, while resistance is a price that capped past advances. Because other traders also keep an eye on these levels, traders place orders near both. Support and resistance break often, and no number of earlier tests guarantees a level will hold ([support and resistance](https://thetraderwiki.com/en/technical-analysis/#support-and-resistance)). ### What is price action trading? Price action trading is reading the price chart directly, using few or no indicators. A price action trader studies candlesticks, trend, and support and resistance. The [chart patterns](https://thetraderwiki.com/en/chart-patterns/) page sets out the named shapes and how often tests show they fail. ### Which technical indicator is the most accurate? No technical indicator has been shown to be the most accurate. Each one is calculated from past prices, so it lags. Each fails in a different kind of market. The [technical indicators](https://thetraderwiki.com/en/technical-indicators/#do-indicators-work) page sets out what the evidence says. ## A chart shows the past, but your margin is at risk in the future > **Risk warning.** A chart shows the past, but your [margin](https://thetraderwiki.com/en/glossary/#margin) is at risk in the future. Margin is the deposit your provider holds while a trade is open. No indicator, pattern or price level knows what announcement will move the market tomorrow. A [leveraged](https://thetraderwiki.com/en/glossary/#leverage) trade is much bigger than your deposit and takes the full force of that news, even if a chart signal set its size. ESMA reported national regulators’ findings that between 74 % and 89 % of retail accounts lost money ([ESMA press release, 27 March 2018](https://www.esma.europa.eu/press-news/esma-news/esma-agrees-prohibit-binary-options-and-restrict-cfds-protect-retail-investors)). Those accounts used platforms with the same charts and indicators everyone else has. ## Sources The original documents this page cites, in the order they first appear. 1. [ESMA agrees to prohibit binary options and restrict CFDs to protect retail investors](https://www.esma.europa.eu/press-news/esma-news/esma-agrees-prohibit-binary-options-and-restrict-cfds-protect-retail-investors), ESMA, 2018-03-27 ## Related pages - [Technical indicators: RSI, MACD, moving averages and more](https://thetraderwiki.com/en/technical-indicators/): RSI, MACD, moving averages, Bollinger Bands, ATR, ADX, VWAP and Fibonacci: formula, settings, weakness. - [Candlestick patterns and chart patterns explained](https://thetraderwiki.com/en/chart-patterns/): Candlestick and chart patterns in words: what each looks like, what it’s taken to mean, and the evidence. - [Fundamental analysis: what moves markets and why](https://thetraderwiki.com/en/fundamental-analysis/): What drives each market, the economic calendar, central banks, earnings, commodity supply, and news trading. - [Trading strategies: what each needs and how it fails](https://thetraderwiki.com/en/trading-strategies/): Trend following, mean reversion, breakout, carry and hedging: what each needs, how each fails, and expectancy. - [Risk management in trading: position size and stops](https://thetraderwiki.com/en/risk-management/): Risk per trade, sizing from your stop, the recovery table, stop types and the habits that empty accounts. --- CFDs are complex, leveraged products, and the regulators’ own figures show that most retail accounts lose money. Nothing on TheTraderWiki is investment advice. Read the full [risk disclosure](https://thetraderwiki.com/en/risk-disclosure/), and if you’re unsure, talk to a qualified adviser. Broker details can change and they can be wrong. Before you open an account, confirm them with the broker and the regulator’s register.