Understanding technical analysis terminology is not merely about memorising names; it is about comprehending the psychology behind price movements. This guide lists 22 of the most critical concepts you need to master in order to read market dynamics more clearly and accurately.
For anyone just stepping into the world of stock investing, looking at a price chart for the first time can feel like reading a foreign language. Terms such as "Heikin Ashi", "Divergence", or "FVG" are often the main barriers preventing beginners from understanding the true potential of the market.
In this article, we list a concise summary of important market jargon, broken down into several easy-to-understand categories.
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Chart Types
Before analysing trends, you need to know how to read price data.
- Candlesticks: This is the standard market display. The candle body shows the opening and closing prices, whilst the colour (typically green for up, red for down) indicates the direction of price movement within that period.
- Heikin Ashi: A variation of the candlestick that uses a unique averaging formula. It functions to "smooth out" price movements to filter market noise, allowing trends to be seen more clearly without the distraction of minor fluctuations.
- Renko: A unique chart that only displays pure price action without taking time into account. A new block is only formed when the price moves by a specified amount.
Market Structure
Understanding structure is like having a roadmap in investing.
- Support & Resistance (S&R): The most fundamental concept in technical analysis. Support is a floor level where the price finds it difficult to fall further, whilst Resistance is a ceiling level where the price finds it difficult to rise higher.
- Dynamic Support & Resistance: Unlike static lines, these levels change in tandem with current price movement. They are commonly identified using indicators such as Moving Averages (MA).
- Trend Lines: Visual lines drawn connecting successive price highs or lows. They serve as a guide to identify the market direction (trend) — whether it is an uptrend or downtrend.
- Market Structure: Analysis of the formation of price Highs (peaks) and Lows (troughs) to determine the current market phase.
- Break of Structure (BOS): Occurs when the price successfully breaks through the previous highest or lowest structure. This signals that the continuation of the existing trend remains strong.
- Change of Character (CHOCH): An early signal of a change in market structure. It often indicates a potential shift in trend direction (reversal), for example from bullish to bearish.
Price Action & Momentum
How do you know when the right time is to enter or exit?
- Breakouts: A critical situation where the price successfully breaks through a support zone, resistance zone, or key trendline with strong momentum.
- Reversal: A complete change in market trend direction. For example, a market that was "bullish" (rising) turns "bearish" (falling).
- Momentum Indicators: Technical tools used to measure the strength and speed of price changes within a given period.
- Oscillators: A type of indicator used to identify whether the market is "Overbought" or "Oversold", helping investors find price turning points.
- Divergence: An "imbalance" situation where price movement and a technical indicator move in opposite directions. This is often an early sign of a strong price reversal.
- Volume: The number of trading units transacted. Volume analysis is essential to confirm whether a price movement is backed by genuine market "interest" or not.
Smart Money Concepts (SMC)
These are modern technical analysis terms that track the movements of large institutions.
- Supply & Demand: Liquidity zones where there is a significant imbalance between buy and sell orders, causing very rapid price movement away from that zone.
- Fair Value Gap (FVG): A price imbalance (gap) caused by aggressive institutional movement. This area tends to be revisited by the market to "rebalance" liquidity before continuing in the original direction.
Advanced Analysis
Once you have mastered the basics, investors can explore more complex techniques.
- Fibonacci Retracements: The use of the "Golden Ratio" mathematical ratios to project potential price pullback levels before the main trend resumes.
- Elliott Wave: A market cycle theory based on mass investor psychology. It states that markets move in 5 impulsive waves (following the trend) and 3 corrective waves (against the trend).
- Harmonic Patterns: The identification of specific geometric patterns (such as Gartley, Bat, or Butterfly) on charts to determine high-potential entry points with lower risk.
- Gann Angles: A complex geometric analysis method introduced by W.D. Gann, combining elements of price, time, and geometric angles to forecast movements.
- Moon Phases: A rather niche alternative approach. It analyses astronomical cycles and their correlation with mass investor psychology in financial markets.
Read Next: [The Secret of the 'Composite Man': How Smart Money Controls the Stock Market (Wyckoff Guide for Beginners)]
Tips for Beginners
Although this list of technical analysis terminology may appear lengthy, you do not need to use all of them at once.
For new investors, it is recommended to focus 100% on mastering Support & Resistance and Trendlines first. A solid grasp of the fundamentals is the key to consistency in trading. Advanced techniques such as Elliott Wave or SMC will only be effective once you understand the basic market structure.
Start with simple charts, practise your observation skills, and never stop learning.
Frequently Asked Questions (FAQ)
What are the most important technical analysis terms for beginners?
For beginners, focus on Support and Resistance as well as Trendlines first. Mastering these basics is the key to consistency in trading before moving on to more complex techniques.
What is the difference between candlestick and Heikin Ashi?
Candlestick charts display the actual opening and closing prices, whilst Heikin Ashi uses an averaging formula to smooth out price movements and filter market noise so that trends are more clearly visible.
Do I need to master all 22 terms before I start trading?
No, you do not. Start with basic concepts such as Support, Resistance, and Trendlines. Master them one by one gradually whilst practising on actual charts.
What is the difference between a leading indicator and a lagging indicator?
Leading indicators such as RSI and Stochastic provide early signals before price movements occur. Lagging indicators such as Moving Averages confirm trends after they have started and are more suitable for filtering false signals.
Mastering technical analysis terminology is an essential foundation for making smarter trading decisions.
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