tools-only Technical Analysis Framework
This reference provides the methodology for conducting objective, chart-based technical analysis of weekly price charts.
Core Principles
- Chart-Only Analysis: Base all analysis purely on chart data. Ignore external news, fundamental data, and market sentiment.
- Objectivity: Focus on observable patterns and data rather than subjective interpretations.
- Weekly Timeframe: All analysis uses weekly charts for medium to long-term perspective.
- Probability-Based: Express future scenarios as probabilities rather than certainties.
1. Trend Analysis
Trend Classification
Uptrend Criteria:
- Higher highs (HH) and higher lows (HL) pattern
- Price trading above key moving averages
- Moving averages aligned in bullish order (shorter MA > longer MA)
Downtrend Criteria:
- Lower highs (LH) and lower lows (LL) pattern
- Price trading below key moving averages
- Moving averages aligned in bearish order (shorter MA < longer MA)
Sideways/Range-bound:
- No clear higher high/low or lower high/low pattern
- Price oscillating between defined support and resistance levels
- Moving averages flat or intertwined
Trend Strength Assessment
Strong Trend:
- Clear, consecutive higher highs/lows (uptrend) or lower highs/lows (downtrend)
- Minimal retracements
- Volume confirming price direction
Weak Trend:
- Irregular higher/lower highs and lows
- Deep retracements (>50% of prior move)
- Divergence between price and volume
Trend Exhaustion Signals:
- Decreasing momentum on new highs/lows
- Volume declining as trend progresses
- Extended distance from moving averages
- Candlestick reversal patterns (e.g., shooting star, hammer, engulfing)
2. Support and Resistance Analysis
Identifying Support Levels
Support represents price levels where buying interest has historically prevented further decline.
Criteria for Valid Support:
- Price has bounced from the level at least 2-3 times
- Volume spikes during bounces
- Longer timeframe support carries more weight
- Round numbers (psychological levels) often act as support
Support Types:
- Horizontal Support: Previous lows aligning at similar price levels
- Trendline Support: Upward-sloping line connecting higher lows
- Moving Average Support: Dynamic support from key MAs (e.g., 20-week, 50-week)
Identifying Resistance Levels
Resistance represents price levels where selling interest has historically prevented further advance.
Criteria for Valid Resistance:
- Price has been rejected from the level at least 2-3 times
- Volume spikes during rejections
- Previous significant highs
- Round numbers often act as resistance
Resistance Types:
- Horizontal Resistance: Previous highs aligning at similar price levels
- Trendline Resistance: Downward-sloping line connecting lower highs
- Moving Average Resistance: Dynamic resistance from key MAs
Support/Resistance Significance
Strong S/R Levels:
- Tested multiple times (3+ touches)
- Long-standing (months to years)
- High volume at previous touches
- Confluence with other technical factors (Fibonacci, round numbers, moving averages)
Weak S/R Levels:
- Only 1-2 touches
- Recent formation
- Low volume at touches
Support-Resistance Flip
When broken, support often becomes resistance and vice versa. This "role reversal" is a key concept:
- Broken Support → Resistance: After downside break, previous support acts as new resistance on retests
- Broken Resistance → Support: After upside break, previous resistance acts as new support on pullbacks
3. Moving Average Analysis
Key Moving Averages for Weekly Charts
- 20-week MA: Short-term trend indicator (approximately 4 months)
- 50-week MA: Medium-term trend indicator (approximately 1 year)
- 200-week MA: Long-term trend indicator (approximately 4 years)
Moving Average Interpretations
Price Position Relative to MAs:
- Above all MAs: Strong bullish structure
- Below all MAs: Strong bearish structure
- Between MAs: Transitional phase, trend unclear
Moving Average Crossovers:
- Golden Cross: 20-week MA crosses above 50-week MA (bullish signal)
- Death Cross: 20-week MA crosses below 50-week MA (bearish signal)
Moving Average Slope:
- Rising MAs: Bullish momentum
- Falling MAs: Bearish momentum
- Flat MAs: Consolidation, lack of directional momentum
Moving Average as Support/Resistance:
- In uptrends, MAs (especially 20-week and 50-week) often provide dynamic support
- In downtrends, MAs often provide dynamic resistance
- Repeated bounces or rejections from MA increase its significance
Moving Average Confluence
When multiple MAs cluster together or align:
- Bullish Alignment: 20-week > 50-week > 200-week (all rising)
- Bearish Alignment: 20-week < 50-week < 200-week (all falling)
- Compressed/Converging MAs: Often precedes significant directional move
4. Volume Analysis
Volume confirms the strength or weakness of price movements.
Volume Interpretation Principles
Volume Confirms Price:
- Rising prices + Rising volume: Healthy uptrend, strong buying
- Falling prices + Rising volume: Healthy downtrend, strong selling
- Rising prices + Falling volume: Weak uptrend, lack of conviction
- Falling prices + Falling volume: Weak downtrend, selling exhaustion possible
Key Volume Patterns
Volume Spikes:
- At Support: High volume bounce suggests strong buying interest (bullish)
- At Resistance: High volume rejection suggests strong selling interest (bearish)
- On Breakout: High volume breakout validates the move
- Low Volume Breakout: Often leads to failed breakout (false signal)
Volume Trends:
- Increasing Volume in Trend Direction: Confirms trend strength
- Decreasing Volume in Trend Direction: Warns of potential trend exhaustion
- Volume Climax: Extremely high volume often marks trend extremes (capitulation or euphoria)
Volume Divergence:
- Bullish Divergence: Price making new lows but volume declining (selling exhaustion)
- Bearish Divergence: Price making new highs but volume declining (buying exhaustion)
5. Chart Patterns and Candlestick Analysis
Reversal Patterns
Bullish Reversal:
- Hammer: Long lower wick, small body at top, appears at support
- Bullish Engulfing: Large green candle fully engulfing previous red candle
- Morning Star: Three-candle pattern (down, small, up)
- Double/Triple Bottom: Price tests support 2-3 times then reverses
Bearish Reversal:
- Shooting Star: Long upper wick, small body at bottom, appears at resistance
- Bearish Engulfing: Large red candle fully engulfing previous green candle
- Evening Star: Three-candle pattern (up, small, down)
- Double/Triple Top: Price tests resistance 2-3 times then reverses
Continuation Patterns
Bullish Continuation:
- Bull Flag: Consolidation after strong move up, then breakout higher
- Ascending Triangle: Higher lows with flat resistance, breaks up
Bearish Continuation:
- Bear Flag: Consolidation after strong move down, then breakdown
- Descending Triangle: Lower highs with flat support, breaks down
Pattern Significance
Patterns carry more weight when:
- Forming at key support/resistance levels
- Accompanied by appropriate volume (high on breakout)
- Confirmed by moving averages and trend structure
- Occurring on longer timeframes (weekly > daily)
6. Scenario Development and Probability Assignment
Scenario Development Process
For each chart analysis, develop 2-4 potential scenarios:
- Base Case Scenario: Most likely outcome based on current chart structure
- Bull Case Scenario: Optimistic scenario if key resistance breaks
- Bear Case Scenario: Pessimistic scenario if key support breaks
- Alternative Scenario (optional): Lower probability but plausible outcome
Probability Assignment Framework
Assign probabilities based on:
High Probability (50-70%):
- Scenario aligned with current trend
- Multiple confirming factors (trend, S/R, MA, volume)
- Recent price action supports scenario
- Clear invalidation level
Medium Probability (25-45%):
- Scenario requires trend change or major breakout
- Some supporting factors but not all
- Depends on key level holding/breaking
Low Probability (5-20%):
- Scenario contrary to most technical factors
- Requires significant shift in structure
- Limited supporting evidence but technically possible
Probability Assignment Example
Current Structure: Uptrend, above all MAs, holding support
Bull Case (60%): Continuation higher after pullback to support
- Reasoning: Trend intact, holding key support, volume confirming
Base Case (30%): Consolidation/range before next move
- Reasoning: Approaching resistance, some profit-taking visible
Bear Case (10%): Break below support, trend reversal
- Reasoning: No clear reversal signals yet, but always possible
Note: Probabilities should sum to 100%. Adjust based on strength of supporting factors.
Invalidation Levels
For each scenario, define a specific price level that would invalidate it:
- Bull Scenario Invalidation: Break below key support
- Bear Scenario Invalidation: Break above key resistance
- Base Case Invalidation: Breakout from range in either direction
7. Analysis Structure and Discipline
Analysis Checklist
For each chart, systematically evaluate:
- ✓ Current Trend: Identify direction, strength, and duration
- ✓ Support Levels: Mark significant horizontal and dynamic support
- ✓ Resistance Levels: Mark significant horizontal and dynamic resistance
- ✓ Moving Averages: Note position, slope, and crossovers
- ✓ Volume Pattern: Assess if volume confirms or contradicts price
- ✓ Chart Patterns: Identify any significant patterns forming or completing
- ✓ Scenarios: Develop 2-4 scenarios with probability estimates
- ✓ Invalidation Levels: Define what would negate each scenario
Objectivity Reminders
- Avoid confirmation bias: Consider both bullish and bearish scenarios
- Let the chart speak: Don't force patterns or signals
- Update analysis as new data emerges: Charts are dynamic
- Admit uncertainty: Not every chart provides clear signals
- Focus on probabilities, not predictions: No scenario is 100% certain
Common Pitfalls to Avoid
- Overcomplicating: Too many indicators can lead to analysis paralysis
- Ignoring Volume: Price without volume is incomplete picture
- Forcing Patterns: Seeing patterns that aren't clearly there
- Disregarding Timeframe: Weekly chart may differ from daily
- Neglecting Context: Each chart in isolation, but overall market matters
- Being Too Certain: Markets are probabilistic, not deterministic