Whether you're new to trading or looking to sharpen your skills, understanding Technical Analysis (TA) is essential for navigating the ups and downs of the stock market. Unlike fundamental analysis, which focuses on a company's financial health, technical analysis studies price charts, patterns, and trading volume to forecast future market movements.
In this blog, we’ll break down the basic TA terms every trader — especially those in the Bangladesh capital market — should know to make informed and confident decisions.
📈 1. Trend
A trend is the general direction in which a stock or the market is moving:
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Uptrend: Higher highs and higher lows
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Downtrend: Lower highs and lower lows
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Sideways/Range-bound: Price moves within a horizontal range
Understanding trends helps traders decide when to enter or exit positions.
🧭 2. Support and Resistance
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Support: A price level where a stock tends to stop falling and may reverse upward. Think of it as a "floor."
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Resistance: A level where a stock tends to stop rising and may reverse downward. It acts as a "ceiling."
Identifying these levels helps traders set entry and exit points and manage risk.
📊 3. Volume
Volume measures how many shares are traded in a given time frame. It indicates the strength behind a price move.
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High volume = strong interest and confirmation
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Low volume = weak or unreliable signals
For example, a breakout above resistance is more convincing if accompanied by high volume.
🔄 4. Moving Average (MA)
A Moving Average smooths out price data to identify trends over a specific time:
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Simple Moving Average (SMA): Average of closing prices over a period (e.g., 50-day SMA)
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Exponential Moving Average (EMA): Gives more weight to recent prices
Traders use MAs to:
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Confirm trends
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Identify dynamic support/resistance
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Generate buy/sell signals (e.g., crossover strategies)
⚠️ 5. Breakout
A breakout occurs when a stock moves above resistance or below support with increased volume. It signals the potential start of a new trend.
Breakouts are often used as entry signals for traders looking to capitalize on momentum.
⏱ 6. Relative Strength Index (RSI)
RSI is a momentum indicator that measures how overbought or oversold a stock is:
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RSI above 70 = overbought (potential reversal down)
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RSI below 30 = oversold (potential reversal up)
RSI helps traders avoid buying at the top or selling at the bottom.
🔄 7. MACD (Moving Average Convergence Divergence)
MACD is a trend-following and momentum indicator. It consists of:
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A MACD line
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A signal line
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A histogram
When the MACD line crosses above the signal line = buy signal
When it crosses below = sell signal
It’s widely used to confirm trends and reversals.
🧱 8. Candlestick Patterns
Candlestick charts show the open, high, low, and close prices for each time period. Common patterns include:
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Doji: Indecision in the market
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Hammer: Potential reversal upward
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Engulfing: Strong reversal signal
Understanding these patterns gives traders insight into market psychology.
🔃 9. Pullback and Reversal
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Pullback: A temporary dip in an ongoing trend (often a buying opportunity)
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Reversal: A complete change in the direction of the trend
Knowing the difference is crucial for timing your trades.
💼 10. Risk-Reward Ratio
This measures the potential reward of a trade relative to its risk.
Risk-Reward = Potential Profit / Potential Loss
Smart traders aim for a risk-reward ratio of at least 1:2 or better, meaning the potential reward should be twice the risk.
🧠 Final Thoughts
Mastering technical analysis doesn’t happen overnight, but understanding these basic TA terms is a strong foundation. They help you:
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Read charts with confidence
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Time your entries and exits
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Reduce emotional decisions
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Manage your risk more effectively
In the Bangladesh capital market, where volatility can be high and information flow inconsistent, technical analysis can offer clarity where fundamentals might fall short.
Remember — TA is about probabilities, not guarantees. Use it as one part of a broader strategy, and always pair your analysis with proper risk management.
