Support and resistance / basic technical analysis explained (RSI, MACD)
- Support is a price level where buying pressure has historically pushed price back up.
- Resistance is a price level where selling pressure has historically pushed price back down.
- RSI measures whether an asset is potentially overbought or oversold.
- MACD helps identify shifts in momentum and trend direction.
Technical analysis (TA) is the practice of studying price charts to identify patterns, rather than analyzing the underlying project or technology. It's not predictive in any guaranteed sense, but understanding the basic vocabulary helps you follow what other traders are talking about — and read a chart with more context.
Support and resistance
Support is a price level where an asset has historically stopped falling and bounced back up, because enough buyers stepped in at that price to outweigh sellers. Resistance is the opposite — a level where an asset has historically stopped rising and pulled back, because enough sellers stepped in to outweigh buyers.
These levels aren't fixed rules the market has to obey — they're patterns based on past behavior, reflecting where a meaningful number of traders have previously reacted. When a price level has been tested multiple times without breaking, some traders treat it as a stronger signal; when it does eventually break, it sometimes flips roles (former resistance becoming new support, or vice versa).
RSI (Relative Strength Index)
RSI is a momentum indicator that measures how fast and how much price has moved recently, expressed as a number between 0 and 100. It's typically interpreted as:
- Above 70: often read as "overbought" — the asset may have risen quickly and could be due for a pullback, though it can also stay elevated during a strong trend.
- Below 30: often read as "oversold" — the asset may have fallen quickly and could be due for a bounce, though it can also stay low during a strong downtrend.
- Around 50: generally read as neutral momentum, neither strongly bullish nor bearish.
RSI is a tool for gauging momentum, not a standalone buy or sell signal — an asset can remain "overbought" or "oversold" for extended periods during a strong trend.
MACD (Moving Average Convergence Divergence)
MACD tracks the relationship between two moving averages of price (typically a 12-period and 26-period average) to help identify shifts in momentum and trend direction. It's plotted as two lines — the MACD line and a "signal line" — plus a histogram showing the gap between them.
The most commonly watched signal is a crossover: when the MACD line crosses above the signal line, it's often read as a potential bullish shift; when it crosses below, a potential bearish shift. Like RSI, this is a pattern traders watch, not a guarantee of what happens next.
How these fit together
None of these tools work in isolation, and none of them predict the future with certainty — they describe what has already happened and offer context for interpreting it. Many traders use support/resistance to identify potential price zones of interest, then use RSI or MACD to gauge whether momentum supports a move in that zone. Even then, unexpected news or broader market shifts can override any technical pattern entirely.
A necessary caveat
Technical analysis is a widely used framework, not a guaranteed method — plenty of experienced traders use it as one input among several, not a standalone system. If you're just starting out, treat these tools as a way to build vocabulary and read charts more fluently, not as a formula for predicting price movement.