Quick Answer
Technical analysis studies a market's own price, volume, and open interest to forecast future moves, assuming price discounts all information and patterns repeat. Support sits below the market, resistance above; a broken level reverses roles. Rising price, volume, and open interest together confirm a healthy trend.
The whole unit on one sheet: what each chart type shows, how trendlines and support/resistance frame a move, and how volume and open interest confirm or cast doubt on it.
What Does Each Chart Type Show?
Technical analysis assumes price discounts everything (all known information is already in the price) and patterns repeat. It answers where and when a market moves; fundamental analysis answers why.
| Chart type | What it plots | Time shown? |
|---|---|---|
| Bar | Open, high, low, and close (OHLC) as one vertical bar | Yes |
| Line | Closing prices only, connected into a line | Yes |
| Candlestick | The same OHLC as a bar, drawn as a real body with wicks | Yes |
| Point-and-figure (P&F) | Columns of Xs (rising) and Os (falling) by price movement | No, time is ignored |
- On a bar, the left tick is the open and the right tick is the close.
- A candlestick's real body is the open-to-close range; it carries the same four data points as a bar.
- P&F advances only when price moves a set box size, and starts a new column only on a defined reversal amount.
How Do Trendlines, Support, and Resistance Work?
- An uptrend line is drawn under rising lows and acts as support; a downtrend line is drawn over falling highs and acts as resistance. A decisive break warns of a possible reversal.
- Support is a floor below the market where buying halts a decline; resistance is a ceiling above it where selling halts an advance. Once decisively broken, a level's role reverses: broken support becomes resistance, and broken resistance becomes support.
- A congestion area (consolidation, trading range) is a sideways zone between support and resistance, representing either accumulation (buyers building positions, before a move up) or distribution (sellers unloading, before a move down). The range itself does not reveal which; the eventual breakout signals the next direction.
What Do Gaps Signal?
A gap is a range with no trading between sessions (an up gap's low sits above the prior high; a down gap's high sits below the prior low). Gaps tend to be filled later. Location in the move, not volume alone, distinguishes the three types.
| Gap type | Where it occurs | Signals |
|---|---|---|
| Breakaway | Start of a move, breaking out of congestion | New trend; often on strong volume |
| Runaway / measuring | Middle of an established trend | Continuation |
| Exhaustion | End of an extended move, on high climactic volume | Possible reversal; tends to fill quickly |
What Do Volume and Open Interest Confirm?
- Volume counts contracts traded in a period. Open interest counts contracts still outstanding, not yet offset.
- Open interest rises when a new buyer meets a new seller, falls when both sides offset, and is unchanged when one side just hands its position to a new participant.
- Rising price, volume, and open interest together confirm a healthy trend. Rising price on falling open interest is suspect, often just short covering.
Which Gotchas Trip Students Up?
- Point-and-figure is the chart that ignores time; bar, line, and candlestick all advance one mark per period.
- A trendline break warns of a possible reversal, not a guarantee, and a line touched many times makes its eventual break more significant.
- A price move on falling open interest is suspect even if price is climbing. Look for rising volume and rising open interest together before calling a rally healthy.
One-Breath Recap
Technical analysis reads a market's price, volume, and open-interest history on the assumption that price discounts all information and patterns repeat; bar, line, and candlestick charts plot open, high, low, and close on a time axis, while point-and-figure ignores time and plots Xs and Os by price movement alone; an uptrend line under the lows acts as support and a downtrend line over the highs acts as resistance, and once either breaks its role reverses, with a congestion area's breakout revealing whether accumulation or distribution was underway; a gap's location (breakaway, runaway, or exhaustion) tells the story more than its volume; and rising price confirmed by rising volume and open interest marks a healthy trend, while falling open interest under a rally often signals mere short covering.
Need more than the recap? Read the full Technical Price Analysis unit.