drakkar-software/technical-analysis

technical-analysis

Overview

This skill provides comprehensive guidance on analyzing technical indicators to evaluate market conditions and generate trading signals. Use this for any technical analysis-related questions or when you need to interpret indicator values.

Instructions

1. Understand Key Technical Indicators

RSI (Relative Strength Index)

• Range: 0-100
• Oversold: < 30 (potential buy signal)
• Overbought: > 70 (potential sell signal)
• Divergence: Price makes new high/low but RSI doesn't (reversal signal)

MACD (Moving Average Convergence Divergence)

• Components: MACD line, Signal line, Histogram
• Bullish crossover: MACD crosses above signal line
• Bearish crossover: MACD crosses below signal line
• Histogram: Shows momentum strength

Moving Averages

• Short-term (SMA/EMA 20): Recent trend
• Medium-term (SMA/EMA 50): Intermediate trend
• Long-term (SMA/EMA 200): Major trend
• Golden cross: 50 MA crosses above 200 MA (bullish)
• Death cross: 50 MA crosses below 200 MA (bearish)

Bollinger Bands

• Upper/Lower bands: Volatility boundaries
• Price near upper band: Potentially overbought
• Price near lower band: Potentially oversold
• Band squeeze: Low volatility (potential breakout coming)
• Band expansion: High volatility (trend in motion)

2. Analyze Multiple Timeframes

When analyzing indicators, consider multiple timeframes:

• 1H/4H: Short-term trading signals
• 1D: Medium-term trend confirmation
• 1W: Long-term trend direction

Higher timeframes carry more weight for trend direction.

3. Look for Indicator Convergence

Strong signals occur when multiple indicators agree:

• RSI oversold + MACD bullish crossover + price above 50 MA = Strong buy
• RSI overbought + MACD bearish crossover + price below 50 MA = Strong sell

4. Assess Trend Strength

Determine if the market is:

• Strong uptrend: Price above all MAs, RSI 50-70, MACD positive and rising
• Strong downtrend: Price below all MAs, RSI 30-50, MACD negative and falling
• Ranging/Consolidation: Price oscillating around MAs, RSI 40-60, MACD near zero

5. Identify Support and Resistance

• Previous highs/lows
• Moving averages acting as dynamic support/resistance
• Bollinger Bands as volatility-based support/resistance
• Round numbers (psychological levels)

6. Volume Analysis

• Rising volume on breakouts confirms strength
• Declining volume on rallies suggests weakness
• Volume spikes often precede reversals

Output Format

When analyzing technical indicators, provide:

{
  "eval_note": <float -1 to 1>,
  "confidence": <float 0-1>,
  "trend": "uptrend" | "downtrend" | "ranging",
  "key_indicators": ["RSI oversold at 28", "MACD bullish crossover", "Price above 50 MA"],
  "description": "Detailed analysis explaining the reasoning"
}

Common Patterns

Bullish Reversal Signs

• RSI divergence (price lower low, RSI higher low)
• MACD histogram turning positive
• Price bouncing off support
• Volume spike on upward move

Bearish Reversal Signs

• RSI divergence (price higher high, RSI lower high)
• MACD histogram turning negative
• Price rejected at resistance
• Volume spike on downward move

Best Practices

1. Never rely on a single indicator - use multiple confirmations
2. Consider the broader market context and trend
3. Account for timeframe - align trade direction with higher timeframe trend
4. Adjust interpretation for different market conditions (trending vs ranging)
5. Be aware of false signals in choppy, low-volume markets