Technical analysis: how can you better understand prices?

Anyone who invests wants to know whether it is a favorable time to buy or sell. Technical analysis is one of the methods that investors use to help make these decisions. Instead of looking at the underlying value of an investment, technical analysis studies the price chart itself: price movements, patterns, and trading volume.

In this knowledge center article, you will read about what technical analysis is, the core principles it relies on, which indicators are used most frequently, how to perform an analysis yourself, and how to apply this method to the prices of gold and silver.

Short summary

Technical analysis is the process of analyzing price charts to estimate potential future price movements based on historical price data and trading volume. The method assumes that all known information is already reflected in the market price, that prices move in trends, and that history repeats itself through chart patterns.

Technical analysis is primarily a tool to help determine the timing of entry and exit points, rather than a guarantee of returns.

What is technical analysis?

Technical analysis is a methodology where you study price charts to assess future price directions. You use historical data, such as market price and trading volume, to search for recognizable patterns and trends. Based on these findings, you attempt to determine a favorable moment to buy or sell.

This method is also frequently referred to as price analysis or chart reading. The foundational idea is that investor behavior, and consequently the price action, exhibits a certain degree of repetition.

Technical analysis is widely utilized for short-term to medium-term decision-making and stands in contrast to fundamental analysis, which evaluates the underlying intrinsic value of an asset.

Why technical analysis is relevant for investors

Many private investors make decisions based on daily news or emotions. A sharply rising price triggers greed, while a temporary decline causes fear. This is precisely where technical analysis can offer structure. By looking at objective price levels beforehand, you trade less on emotion and more on what the market is actually doing.

For instance, you can see whether a price increase is supported by high volume, whether a decline fits within a normal market correction, or whether a price is approaching a critical level.

For gold and silver, this is particularly valuable because these markets are sensitive to sentiment and can fluctuate significantly in the short term. Technical analysis removes a layer of emotion from your decision-making, though it never guarantees the final outcome.

Technical analysis versus fundamental analysis

Technical and fundamental analysis are often presented as opposing views, but in practice, they complement each other well. One looks at the price chart, while the other looks at the underlying value. Investors who understand both can evaluate a market more completely.

The table below outlines the key differences side by side.

A simple way to remember it: fundamental analysis helps answer what you want to own, while technical analysis helps answer when to buy, sell, or re-evaluate. For stocks, fundamental analysis looks at earnings and revenue.

With precious metals, it works differently: gold and silver do not yield corporate profits or dividends, so fundamental analysis there focuses on global supply and demand, interest rates, the US dollar exchange rate, inflation, and central bank purchases.

How these factors play out can be read in our article on the influence of the ECB interest rates on precious metals.

The three core principles of technical analysis

Technical analysis has historically relied on three major assumptions, which trace back to the foundational work of Charles Dow.

First, the market discounts everything. The idea is that all known facts, future expectations, and emotions are already factored into the live price. Therefore, the price is the starting point of the analysis, rather than the news driving it.

Second, prices move in trends. A price rarely travels in a straight line up or down, but instead displays a recognizable direction: an upward trend, a downward trend, or a sideways trend (a trading range).

Third, history repeats itself. Because market behavior is largely driven by human psychology, certain geometric patterns return on the charts with regular frequency. This is exactly what a technical analyst tries to identify.

The building blocks: charts, trends, support and resistance

Before you start adding indicators, it is vital to master the basics of a price chart. Three elements form the foundation of almost any technical analysis: the chart where you read the price action, the trend that dictates the direction, and the support and resistance levels where price frequently reacts. We explain them below.

Charts and candlesticks. The candlestick chart is the most widely used tool. Each candle displays four data points within a specific timeframe: the opening and closing prices (which together form the "body") and the highest and lowest prices (the "shadows"). A green candle means the closing price was higher than the opening price; a red candle means it was lower.

Trends and trend lines. By connecting consecutive peaks or troughs, you draw trend lines that visually reveal the trajectory of the market. Always determine the dominant trend before expanding your analysis.

Support and resistance. A support level is a price below which the asset seems to have difficulty falling because buyers tend to step in at that area. A resistance level is a price above which the asset seems to have difficulty rising because sellers become active. If a price breaks clean through such a level, many analysts view it as a potential signal of a trend change. It provides no certainty; confirmation from other signals remains necessary.

Example chart

In the chart below, you can see the four building blocks of technical analysis brought together on an illustrative gold price chart. The gold price (gold) moves in an upward trend, where the rising troughs together form the upward trend line. The price repeatedly hits a resistance zone (red) and bounces upward from the support zone (green).

The 200-day moving average (blue) runs below the price action and confirms the upward direction. When the price eventually breaks through the resistance, analysts refer to this as a breakout, a widely followed signal that the trend may continue.

Illustrative example of technical analysis on the gold price: an upward trend with support and resistance zones, the 200-day moving average, and a breakout above resistance. This does not represent actual market data.

Recognizing classic chart patterns

In addition to trends and indicators, technical analysts watch for recurring shapes on the chart: chart patterns. These patterns occur because the behavior of buyers and sellers repeats with a certain regularity.

They are broadly divided into reversal patterns, which indicate a potential turn in the trend, and continuation patterns, which signal a likely continuation after a temporary breather.

The most famous reversal patterns are:

• Double top and double bottom: With a double top, the price tests roughly the same peak twice and fails to break higher, which can indicate an approaching decline. The double bottom is the mirror image and can indicate a floor is forming.
• Head and shoulders formation: This pattern consists of three peaks, with the middle one (the "head") being the highest. It is seen as a potential signal that an upward trend is becoming exhausted. The inverse head and shoulders formation can announce the end of a downward trend.

Among continuation patterns, triangles are the most well-known. During an ascending, descending, or symmetrical triangle, the price moves within an increasingly narrow range, as if the market is taking a breather. If the price breaks out afterward, it often happens in the direction of the existing trend.

It is important to note that a pattern never offers certainty. Patterns fail regularly, and a breakout can also be a false signal. They are most reliable when you combine them with trading volume and other signals, such as a breakthrough of a support or resistance level. With silver, which is naturally more volatile than gold, chart patterns also generate false alarms more frequently than with the more steadily progressing gold.

The most important technical indicators

Indicators are calculations based on price data that provide additional market context. They are generally separated into trend-following (lagging) indicators, which confirm an existing trend, and momentum (leading) indicators, which attempt to signal an upcoming change. The most commonly used are:

• Moving average: This averages the price over a set period, smoothing out short-term noise into a fluid line. The 50-day and 200-day moving averages are heavily monitored; the 200-day average often serves as the dividing line between a bull and a bear market.
• RSI (relative strength index): This oscillator fluctuates between 0 and 100, indicating whether an asset is potentially overbought (above 70) or oversold (below 30). A low RSI does not automatically mean the price will reverse immediately, but it suggests extra caution is warranted.
• MACD: This indicator compares two different moving averages to help identify shifts in momentum and trend strength.
• Bollinger Bands: These measure how far a price deviates from its moving average, offering a visual representation of market volatility.
• Volume: A price movement accompanied by high trading volume is generally considered stronger and more sustainable than the same movement on low volume.

Executing technical analysis: a step-by-step plan

Performing a technical analysis follows a logical sequence of steps. This helps you establish structure and make decisions less reliant on emotion:

• Choose the price chart you want to analyze: Start with a single market, such as the gold price or the silver price. Pay close attention to how it is quoted: precious metals can be displayed per gram, per kilo, or per troy ounce. Internationally, the troy ounce is standard, while Dutch private buyers often focus on the price per gram or kilo.
• Select a time horizon that matches your goal: A daily chart tells you very little if your horizon is ten years, and a multi-year chart is unsuitable if you plan to buy next week. Long-term investors look primarily at weekly and monthly charts.
• Determine the primary trend: Establish whether the price is making higher highs and higher lows (upward), lower highs and lower lows (downward), or moving within a specific channel (sideways).
• Draw in support and resistance zones: Mark the price levels where the market reversed in the past. When dealing with precious metals, it is wiser to work with price zones rather than a single exact price figure, as the market operates internationally and is highly currency-sensitive.
• Add one or two indicators: For example, combine a moving average with the RSI, and look for signals that reinforce one another. Use indicators as support data, not as standalone buy or sell triggers.
• Combine with fundamental analysis and your overall plan: A technical signal carries more weight if it aligns with a logical macroeconomic picture and fits your own strategy.

Technical analysis applied to gold and silver

While technical analysis is frequently illustrated using corporate stocks, it is just as applicable to precious metals. You analyze the gold and silver charts in the exact same manner for trends, support, and resistance.

However, there are clear differences between the two metals. Gold is widely viewed as a more defensive asset and fulfills a role as a safe haven. Silver, alongside its investment function, has a heavy industrial application side, making it inherently more volatile. A positive technical signal for gold does not automatically translate into the same outcome for silver: silver can rise faster, but it can also correct harder, leading to more frequent false alarms on the silver chart.

For those considering buying physical gold or buying silver, technical analysis serves primarily as a tool to optimize an entry point, rather than a prompt to trade rapidly. Many physical metal investors operate on a long time horizon and choose to spread their purchases over multiple intervals, making them less dependent on a single price point.

Technical analysis can also provide support when determining a selling point; we delve deeper into this in our article on when it is best to sell gold and silver.

For buying gold and silver, the technical analysis is mainly a tool to pick the best entrypoint and it's not used for quick trades.

Technical analysis within your wealth strategy

Within wealth management, technical analysis is not about rapid trading, but about better decision-making. A logical sequence helps in this regard. First, determine what portion of your wealth you want to hold in physical precious metals; that is a strategic choice, not a chart question.

Next, look at whether the gold and silver prices are in an upward, downward, or sideways trend, and locate the key support and resistance zones. Only after that do you determine whether to buy immediately, enter in phases, or wait for more confirmation.

This ensures technical analysis remains subordinate to your plan, rather than the other way around. We further elaborate on the distribution of your wealth in asset allocation and the role of precious metals in the portfolio, as well as the trade-off between the short and long term in structural wealth accumulation: long term versus short term.

Common mistakes in technical analysis

To get the most out of your chart analysis, it is advisable to avoid the following common pitfalls:

• Searching for certainty: No single indicator predicts the future. An RSI, moving average, or support zone outlines a probability, not a guarantee.
• Too many indicators at once: This clutters the chart and generates conflicting signals. Choose a limited number of tools and apply them consistently.
• Shifting time horizons: Anyone building a long-term position should not be startled by a decline on the daily chart. Evaluate signals on the timeframe that aligns with your strategy.
• Confirmation bias: Investors often see primarily what they want to see. If you have already decided that gold must rise, you unconsciously search for confirmation. A proper analysis also weighs the opposing scenario.

The limitations of technical analysis

Technical analysis is an additive tool, not a crystal ball. To begin with, it is not an exact science: interpreting charts is partially subjective, and two separate analysts can look at the identical chart and read it differently.

Furthermore, there is foundational academic criticism against it. According to the Efficient Market Hypothesis, all known information is already perfectly priced into the asset, meaning that studying historical chart data has zero predictive value according to critics. Whether you share that criticism or not, it highlights that technical analysis is controversial and must be used with nuance.

The methodology works best as part of a broader framework, paired with fundamental analysis and a well-planned asset diversification strategy. Investing involves risks, and past performance is no guarantee of future results.

Conclusion: how you can understand prices

Technical analysis helps you read price charts more clearly by highlighting trends, support and resistance zones, moving averages, and momentum metrics. For gold and silver investors, it serves as a valuable practical tool to help determine entry and exit points while removing raw emotion from your decision-making process.

Yet, it remains far from a crystal ball: the method performs best when aligned with fundamental analysis, a clear investment horizon, and thoughtful portfolio diversification. Therefore, use it with realistic expectations as part of your wider wealth strategy.