Technical analysis studies price and volume patterns to identify trading opportunities. While fundamental analysis tells you what to buy, technical analysis helps determine when to buy. The most effective investors integrate both disciplines.
Moving Averages
Moving averages smooth price data to reveal underlying trends:
- Simple Moving Average (SMA) — Equal weight to all periods. The 50-day and 200-day SMAs are the most widely followed by institutional investors.
- Exponential Moving Average (EMA) — Weights recent prices more heavily, reacting faster to changes.
Key Signals
- Golden Cross — 50-day SMA crosses above the 200-day SMA. Historically a bullish signal indicating the start of a sustained uptrend.
- Death Cross — 50-day SMA crosses below the 200-day SMA. A bearish signal, though it often occurs well after the decline has begun.
- Price relative to 200-day SMA — Stocks trading above their 200-day SMA are in a long-term uptrend. Our market breadth indicators track the percentage of stocks above key moving averages.
Relative Strength Index (RSI)
RSI measures the speed and magnitude of recent price changes on a scale of 0–100:
- Above 70: Overbought — potential pullback
- Below 30: Oversold — potential bounce
- RSI Divergence: When price makes new highs but RSI does not (bearish divergence), or price makes new lows but RSI does not (bullish divergence). Backtests show 65%+ accuracy when aligned with key support/resistance zones.
MACD (Moving Average Convergence Divergence)
MACD tracks trend momentum through the relationship between two moving averages:
- MACD Line: 12-period EMA minus 26-period EMA
- Signal Line: 9-period EMA of the MACD line
- Histogram: Visual representation of the gap between MACD and Signal line
Combined MACD + RSI strategies have shown a 73% win rate over 235 trades in backtests, with an average gain of 0.88% per trade including transaction costs.
Support and Resistance
- Support — Price levels where buying interest prevents further decline
- Resistance — Price levels where selling pressure caps advances
- Former resistance often becomes support once broken (and vice versa)
- Volume confirmation strengthens signals — breakouts on high volume are more reliable than low-volume moves
Volume Analysis
On-Balance Volume (OBV)
OBV adds volume on up days and subtracts on down days, creating a running total that reveals accumulation (buying) or distribution (selling). OBV divergence — when price makes new highs but OBV does not — warns of weakening momentum.
Accumulation/Distribution Line
More nuanced than OBV, it factors in where the price closes relative to its high-low range, providing a refined view of whether volume represents buying or selling pressure.
How Technicals Complement Fundamentals
The most effective approach integrates both disciplines:
- Use fundamental analysis to identify high-quality, undervalued companies (the "what")
- Use technical analysis to time entries and exits (the "when")
- Technical signals that align with fundamental catalysts (earnings beats, guidance raises) are the strongest
- Support/resistance and volume help identify better entry points for fundamentally attractive stocks
Our quantitative rankings incorporate momentum as a key factor (25% weighting), blending price trend analysis with fundamental quality, value, and stability measures. This systematic integration of technical and fundamental signals is what drives the model's effectiveness.