Technical Analysis: Financial Fortune Telling (But with Better Graphs)
Technical analysis is the art of staring at a squiggly line on a screen until you convince yourself you know what it’s going to do next. While fundamental analysts spend their days reading boring annual reports and trying to understand “macroeconomics,” technical analysts believe that everything you need to know is already baked into the price.
Think of it like this: if you see a crowd of people sprinting away from a building, you don’t stop to check the building’s structural integrity or read its fire safety certification. You just start running. Technical analysis is simply the study of that “running” behavior to guess where the crowd is headed next. It operates on the premise that history repeats itself because human psychology—specifically greed and fear—is as predictable as a toddler in a candy aisle.
Enter the Japanese Candlestick: The Star of the Show
If you’ve ever looked at a trading screen and thought it looked like a neon-lit EKG of a caffeinated squirrel, you were likely looking at Japanese Candlesticks. These aren’t for scented dinners; they were actually developed in the 18th century by Munehisa Homma, a Japanese rice trader who realized that while supply and demand were important, the emotions of the traders were the real secret sauce.
Anatomy of a Candle
Each candlestick tells a little four-part story about a specific timeframe (whether it’s a minute, an hour, or a day). To read one, you need to understand the OHLC: Open, High, Low, and Close.
The Body (The Chunky Part): This represents the range between where the price started (Open) and where it ended (Close).
If the candle is Green (or white), the price went up. The bulls won!
If the candle is Red (or black), the price went down. The bears are currently eating the bulls’ lunch.
The Wicks (The Shadows): These thin lines sticking out of the top and bottom represent the High and Low. They show the “price rejection.” A long upper wick is basically the market saying, “We tried to go this high, but we got scared and ran back down.”
