Skip to content

NISM-Series-X-A: Investment Adviser (Level 1) · Investing in Stocks

Technical Analysis Basics: Trends, Support, Resistance and Moving Averages

Updated 11 October 2026 · Fact-checked

Technical analysis studies past price and volume data, usually on charts, to judge the direction of a stock and time entry and exit. It does not value the business. To solve questions, identify the trend, mark support and resistance, check moving averages and indicators, then match the signal to the rule.

Understand Technical Analysis

Technical analysis studies price and volume history to forecast future price moves. It assumes three things: price reflects all available information, prices move in trends, and history tends to repeat because investor behaviour repeats.

Fundamental analysis asks what a stock is worth, using earnings, balance sheet and industry. Technical analysis asks when to buy or sell, using charts. Fundamental analysis suits long-term selection. Technical analysis is mainly used for timing, often over shorter periods.

A trend is the general direction of price. In an uptrend, prices make higher highs and higher lows. In a downtrend, they make lower highs and lower lows. A sideways trend has no clear direction. Common chart types are line, bar and candlestick charts. A candlestick shows open, high, low and close for a period.

Support is a price level where falling prices tend to stop because buyers step in. Resistance is a level where rising prices tend to stop because sellers step in. When price closes decisively through resistance, it is a breakout. When it falls through support, it is a breakdown. A broken resistance often becomes new support, and a broken support often becomes new resistance.

A moving average smooths price by averaging the last N closing prices, so it lags the price. A simple moving average (SMA) weights all days equally. An exponential moving average (EMA) gives more weight to recent prices. Indicators such as RSI, MACD and Bollinger Bands are built from price and volume to show momentum or volatility. Technical signals are probabilities, not guarantees.

Key formulas to remember

Simple moving average (SMA)
SMA = (sum of closing prices over N periods) ÷ N
Each new period drops the oldest price and adds the newest. It lags price.
Uptrend and downtrend
Uptrend: higher highs and higher lows. Downtrend: lower highs and lower lows
Both highs and lows must follow the pattern.
Moving average crossover
Short-term MA crosses above long-term MA = bullish; crosses below = bearish
Often called golden cross (bullish) and death cross (bearish) for the 50-day and 200-day averages.
Support and resistance
Support = floor where buying emerges; Resistance = ceiling where selling emerges
A decisive break reverses the role of the level.
RSI
RSI ranges from 0 to 100; above 70 = overbought, below 30 = oversold (common convention)
A 14-period setting is the usual default. The 70 and 30 levels are conventions.
Candlestick body
Close above open = bullish candle; close below open = bearish candle
Wicks show the high and low of the period.

How to solve Technical Analysis questions

Use this method for any technical analysis question, whether it is a definition, a chart reading or a signal.

  1. 1Read the question and decide if it asks for a definition, a comparison with fundamental analysis, or a signal reading.
  2. 2For comparison questions, remember: fundamental = value and what to buy; technical = price patterns and when to buy.
  3. 3For trend questions, check both highs and lows. Higher highs and higher lows mean uptrend.
  4. 4For support and resistance, ask whether price is falling to a floor or rising to a ceiling, and whether the level has been broken.
  5. 5For moving averages, calculate the average if numbers are given. Then compare price with the average or the short average with the long one.
  6. 6For indicators, apply the standard convention, such as RSI above 70 as overbought, and remember it is a signal, not proof.
  7. 7Eliminate options that say a signal is certain or guaranteed.
  8. 8Re-read the question for words like bullish, bearish, lagging or leading before marking.

Quickest way: Keyword and direction check

When to use it: Use when time is short and the question is conceptual or a simple signal reading.

  1. Spot the keyword: trend, support, resistance, SMA, EMA, RSI, crossover.
  2. Map it to its one-line meaning from your notes.
  3. Decide bullish or bearish: price above rising average or breakout above resistance is bullish; the opposite is bearish.
  4. Drop any option that uses words like always, guaranteed or valuation of the company.
  5. For SMA numbers, add the prices, divide by N and check the answer against the options.

Common mistakes in Technical Analysis

  • Saying technical analysis measures the intrinsic value of a company.

    Students mix it up with fundamental analysis.

    Fix: Link technical to price and volume charts and timing. Link fundamental to value from financials.

  • Calling a trend an uptrend when only the highs are rising.

    Students ignore the lows.

    Fix: Check both: higher highs and higher lows.

  • Treating support as a ceiling and resistance as a floor.

    The two words sound alike in effect.

    Fix: Support supports price from below. Resistance resists price from above.

  • Thinking a moving average predicts or leads price.

    Students see it as a forecast line.

    Fix: It is built from past prices, so it lags. It only confirms trend.

  • Believing RSI above 70 means the price must fall.

    Overbought is read as a certain reversal.

    Fix: Overbought means stretched momentum. Strong trends can stay overbought for long.

  • Mixing up SMA and EMA weighting.

    Both smooth price and look similar.

    Fix: SMA weights all periods equally. EMA weights recent prices more.

Worked examples

Example 1

A stock closed at ₹98, ₹102, ₹100, ₹104 and ₹106 over five days. What is the 5-day simple moving average, and is the last close above or below it?

Show the solution
  1. Add the closing prices: 98 + 102 + 100 + 104 + 106 = 510.
  2. Divide by 5: 510 ÷ 5 = 102.
  3. Compare the last close, ₹106, with ₹102. It is higher.
  4. Price above its moving average, with prices rising, is generally read as bullish.

Answer: The 5-day SMA is ₹102. The last close of ₹106 is above it, which is a bullish signal.

Example 2

A stock repeatedly fell to ₹250 and bounced. It then closes decisively at ₹240. What does this indicate?

Show the solution
  1. The repeated bounces at ₹250 show that ₹250 acts as support.
  2. A decisive close below support is a breakdown.
  3. A breakdown is a bearish signal and suggests further fall is possible.
  4. The broken support at ₹250 may now act as resistance if price rallies back.

Answer: It is a breakdown below support, a bearish signal, and ₹250 may now act as resistance.

Exam tips

  • Be ready for both definitions and simple calculations, and check the current NISM X-A syllabus and workbook. Learn the technical versus fundamental contrast well.
  • Remember that signals are probabilities. Options claiming certainty are usually wrong.
  • Learn the standard conventions: RSI 70 and 30, golden cross and death cross.
  • Negative marking is 25% of the marks assigned to the question. A wrong answer costs 0.5 on a 2-mark question and 0.25 on a 1-mark question. Skip a question you cannot justify, especially a 2-mark one.
  • In caselets, read the price data carefully and apply the trend rule using both highs and lows.

Practice questions from Investing in Stocks

Technical Analysis in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Technical Analysis: frequently asked questions

What is the difference between technical and fundamental analysis?

Fundamental analysis estimates a stock's intrinsic value from financials, industry and management. Technical analysis studies price and volume charts to judge trend and timing. Fundamental helps decide what to buy, technical helps decide when.

What are support and resistance?

Support is a price level where a falling stock tends to find buyers and stop. Resistance is a level where a rising stock tends to meet sellers and stop. A decisive break through either often reverses its role.

What is a moving average used for?

A moving average smooths price data to show the trend. It lags price because it uses past closes. Traders compare price with it, or a short average with a long one, to spot trend changes.

Is technical analysis asked in the NISM X-A exam?

Check the current NISM X-A syllabus and workbook to see exactly how technical analysis is covered. Be ready for both concept questions and simple calculations such as a moving average.