Technical analysis is the study of price history to forecast future price direction. Rather than analysing company earnings, economic data, or news events (which is the domain of fundamental analysis), technical analysts believe that all known information is already reflected in the current price — and that historical price patterns tend to repeat themselves.
The three core assumptions that underpin technical analysis are: (1) The market discounts everything — price reflects all available information; (2) Prices move in trends — once a trend is established, it is more likely to continue than to reverse; (3) History repeats itself — market participants react to similar situations in similar ways, creating recognisable patterns.
Fundamental analysis: Studies economic data, central bank policy, and geopolitical events to understand why prices move. Better suited to longer-term position trading. Covered in detail in the next course.
Most professional traders use both — technical analysis for timing entries and exits, fundamental analysis for overall market direction.
Technical analysis works because patterns are caused by human psychology — fear, greed, and herding behaviour that repeat across all markets and all timeframes. A Head and Shoulders pattern forms in Gold for the same psychological reasons it forms in EUR/USD or in the Dow Jones — and studying these patterns gives you a probabilistic edge in predicting what comes next.
Throughout this course, we will use Gold (XAU/USD) and EUR/USD as primary examples — the two most actively traded instruments by GBH Markets clients in the MENA region. Every concept you learn can be applied to any instrument on any timeframe in your GBH trading platform.
Before you can analyse a chart, you need to understand how to read one. GBH WebTrader and MetaTrader offer multiple chart types and timeframes — choosing the right combination for your trading style is the first decision every trader must make.
The recommendation for most traders: use Candlestick charts. They are the most widely used globally, they contain the most information, and virtually all pattern recognition theory is based on candlestick formations. GBH WebTrader defaults to candlestick charts, as does MetaTrader 4 and 5.
Timeframes determine what each candle represents. On the H1 (1 hour) chart, each candle shows the price action for one complete hour. On the D1 (Daily) chart, each candle shows a full trading day. GBH WebTrader and MetaTrader offer the following timeframes:
Each candlestick tells a complete story about the battle between buyers and sellers during that time period. The body of the candle shows the range between the opening and closing price. The wicks (or shadows) above and below the body show the highest and lowest price reached during that period — representing where buyers or sellers tried to push the price but ultimately failed.
A long wick at the top of a candle means buyers drove price up during the period, but sellers pushed it back down before close — a sign of selling pressure. A long wick at the bottom means sellers pushed price down, but buyers stepped in and recovered it — a sign of buying pressure at that level.
Support and resistance are the most important concepts in all of technical analysis. Without understanding them, no indicator or pattern has context. With them, you can identify high-probability trade entries, set logical stop-losses, and determine realistic profit targets on any instrument.
A support level is a price area where buyers have historically stepped in and prevented further price decline. Think of it as a floor — each time price approaches this level, demand exceeds supply and price bounces upward. A resistance level is the opposite — a ceiling where sellers consistently appear and prevent further price rise.
The key insight about support and resistance is that they can reverse roles. When price breaks convincingly through a resistance level, that former resistance often becomes the new support. When price breaks through a support level, it often becomes new resistance. This "role reversal" is one of the most reliable phenomena in all of technical analysis.
2. Look for price areas where the market has turned multiple times — the more times price has respected a level, the stronger it is.
3. Draw zones, not exact lines — support and resistance are price areas, not precise prices. A zone of ±5–15 pips around the key level is more realistic.
4. Focus on round numbers — Gold at $2,300, EUR/USD at 1.0800 — markets frequently pause at psychologically significant round numbers.
5. The longer the time since last test, the stronger the level becomes when retested.
A moving average smooths out price data to create a single flowing line that shows the overall trend direction. Instead of looking at the chaotic, constantly changing price action, a moving average filters out the noise and shows you the underlying direction of the market.
There are two main types used by traders:
The most powerful moving average technique is the Golden Cross and Death Cross — two key crossover signals used by traders worldwide:
Death Cross (Bearish): The 50-period MA crosses below the 200-period MA. Signals a long-term shift to bearish trend. A Death Cross in Gold on the D1 chart is a significant warning signal that the downtrend may persist for an extended period.
Commonly used moving average settings: 20 EMA (short-term momentum), 50 EMA (medium-term trend), 200 SMA (long-term trend direction). The 200-day MA is the most widely watched moving average in financial markets globally — price action relative to the 200-day MA is one of the first things institutional traders check.
The Relative Strength Index (RSI) is the most popular momentum indicator in Forex and CFD trading. Developed by J. Welles Wilder, it measures the speed and magnitude of recent price changes to assess whether a market is overbought (potentially due for a pullback) or oversold (potentially due for a bounce).
RSI is displayed as an oscillator that moves between 0 and 100. The key threshold levels are:
The most powerful RSI signal is divergence — when price and RSI move in opposite directions:
Bearish Divergence: Price makes a higher high, but RSI makes a lower high. Momentum is weakening on the upside — selling pressure is building even as price continues to rise. Early warning of a potential reversal downward. Often signals the end of Gold or EUR/USD rallies before a significant pullback.
The MACD (Moving Average Convergence Divergence) is one of the most versatile and widely used indicators in technical analysis. It combines trend-following with momentum, making it uniquely powerful for confirming both the direction and strength of a trend.
MACD consists of three components: the MACD line (difference between a 12-period EMA and a 26-period EMA), the Signal line (9-period EMA of the MACD line), and the Histogram (the difference between MACD and Signal — shown as bars that expand and contract).
The MACD histogram is particularly useful for spotting momentum changes early. When the histogram bars are getting smaller (converging toward zero), it indicates that the current trend is losing momentum — even before the crossover signal occurs. This gives traders early warning to tighten stops or prepare for a potential reversal.
Buy Setup: RSI crosses above 30 (from oversold) AND MACD crosses above Signal line AND price is at a key support level.
Sell Setup: RSI crosses below 70 (from overbought) AND MACD crosses below Signal line AND price is at a key resistance level.
This confluence of signals significantly increases the probability of a successful trade — each indicator independently confirms what the others are showing.
The Fibonacci retracement tool is one of the most widely used in Forex and CFD trading — used by retail and institutional traders alike to identify potential areas of support and resistance following a significant price move.
The key Fibonacci retracement levels are: 23.6%, 38.2%, 50%, 61.8%, and 78.6%. The most important of these is the 61.8% level — also known as the "Golden Ratio." When price makes a large move and then begins to pull back, these percentage levels often act as temporary support or resistance before the original trend resumes.
2. In MetaTrader: Insert → Fibonacci Retracement. In GBH WebTrader: use the Drawing Tools panel.
3. For an upward move: drag from the swing low to the swing high. The retracement levels show where price might pull back to before continuing up.
4. For a downward move: drag from the swing high to the swing low. Levels show where price might retrace upward before continuing down.
5. The 61.8% level (the Golden Ratio) is the most powerful — when combined with a candlestick reversal signal and RSI at oversold/overbought, it creates a very high-probability entry zone.
Chart patterns are another powerful tool in the technical analyst's toolkit. These are specific formations that appear on price charts — often formed over days or weeks — that signal a likely future direction. Key patterns every trader should recognise: