NISM RA Chapter 15 — Technical Analysis: every chart, pattern and indicator explained

This is my note on Chapter 15 of the NISM-Series-XV Research Analyst workbook — “Technical Analysis.” At 15 marks it is the single heaviest chapter in the syllabus, and it was newly added in the January 2026 restructure — which means a lot of older prep material doesn’t cover it at all. If you’re studying from anything published before 2026, this is the chapter you’re missing.

It’s also the chapter that feels most alien to anyone who has just spent ten chapters learning to value businesses. Everything we learned in Chapters 4 through 10 said: study the business, estimate its intrinsic value, buy below it. This chapter says: ignore all that, the price already knows. Both are on the same exam. Learn both.

Since the workbook is full of charts, I’ve drawn my own text diagrams for every pattern below — they’re simplified, but they capture the shape you need to recognise.

The philosophy: five assumptions

i. Price Discounts Everything — all known and unknown information, economic, political and psychological, is already reflected in the market price. Technical analysts focus solely on price and volume, not external fundamentals.

ii. Price Moves in Trends — markets move in identifiable trends: up, down or sideways. Once a trend is established, it is more likely to continue than reverse.

iii. History Repeats Itself — market behaviour is cyclical and driven by human psychology, so patterns and formations seen in the past tend to recur under similar conditions.

iv. Market Action is Predictable (to a degree) — not infallible, but recurring patterns and indicators offer probabilistic insights. Technical analysis is about managing risk, not guaranteeing outcomes.

v. Volume Confirms Price — volume trends validate price movements and signal strength or weakness. High volume during breakouts or reversals adds credibility to the move.

It’s used across asset classes — equities, currencies, commodities and crypto — and is especially favoured for short- to medium-term strategies.

Technical vs Fundamental Analysis

The comparison table is straightforward exam material:

Feature	Technical Analysis	Fundamental Analysis
Focus	Understanding price action and market behaviour	Determining intrinsic value of the asset
Data source	Historic price and volume data	Financial statements, economic reports, industry publications
Time horizon	Short/medium term trading strategies	Long-term investment decisions
Tools	Chart patterns and indicators — RSI, MAs, MACD, OBV	Cash flow statements, DCF valuation, SWOT, ratio analysis
Assumptions	Current market price captures all information; the trend is likely to continue	At times market prices may deviate from intrinsic values
Objective	Forecast price movements and trading opportunities	Identify undervalued or overvalued assets
Followed by	Traders, chartists, speculators, short-term investors	Fund managers, portfolio managers, value investors, long-term investors

The six chart types

Line chart — uses closing prices over time as a continuous line. Ideal for quick trend visualization and a long-term perspective. Its limitation: it does not capture intraday movement — no open, high or low.

Bar chart (OHLC) — shows Open, High, Low and Close for each period. Best for detailed price action analysis and identifying volatility; it highlights the price range and directional bias.

      high ─┐
            │
   open ────┤          The left tick is the OPEN
            │          The right tick is the CLOSE
            ├──── close  The vertical line spans HIGH to LOW
            │
       low ─┘

Candlestick chart — similar to bar charts but visually much clearer, using “candles” to show OHLC. Best for identifying patterns like Doji, Hammer and Engulfing, and reading market psychology. Uses colour-coded bodies to interpret trends easily.

   BULLISH (green)          BEARISH (red)
        │  ← upper wick          │
      ┌───┐ ← close            ┌───┐ ← open
      │   │                    │███│
      │   │ ← real body        │███│ ← real body
      └───┘ ← open             └───┘ ← close
        │  ← lower wick          │

Point and Figure chart — focuses only on price movements and ignores time and volume. Widely used for identifying breakout levels and support/resistance zones. It filters out noise and is ideal for long-term trend analysis.

Renko chart — uses fixed price movements (“bricks”) rather than time intervals. Best for clarity on trends and momentum tracking; it smooths out minor fluctuations and is good for trailing stop strategies.

Heikin-Ashi chart — adjusted candlesticks that average price data to reduce noise. Gives great visual clarity, ideal for trend-following, and helps a trader stay longer in a trade by filtering out whipsaws.

Dow Theory

Developed by Charles Dow through editorials between 1900 and 1902, and organised into a formal theory after his death by his successors William Hamilton and Robert Rhea. (Those two names and the date range are exactly the kind of detail that becomes a question.)

The six tenets

i. The Market Discounts Everything — all information, economic, political or psychological, is already captured in prices. It aligns with the Efficient Market Hypothesis and is foundational to technical analysis.

ii. The Market Has Three Trends — the Primary trend is the long-term movement (bull or bear market); the Secondary trend is corrections or rallies within it (weeks to months); the Tertiary trend is minor, reflecting short-term fluctuations (days to weeks).

iii. The Primary Trends Have Three Phases —

Accumulation — smart money enters quietly.
Public participation — the broader market joins as momentum builds.
Distribution — smart money exits; retail investors often enter or exit late. This mirrors Wyckoff’s market cycle and is crucial for identifying entry/exit points and sentiment shifts.

iv. Indices Must Confirm Each Other — for a trend to be valid, both major indices must move in the same direction (Nifty and Sensex together). Still used in intermarket analysis and sector rotation signals.

v. Volume Confirms the Trend — volume should increase in the direction of the primary trend. Used in confirming breakouts, momentum analysis and divergence spotting with tools like On-Balance Volume and Volume Profile.

vi. Trends Persist Until Clear Reversal — a trend is assumed in effect until there’s a definite signal of reversal. This underpins trend-following strategies, trailing stops, moving average crossovers and price structure analysis.

Why it still matters: it provides a structured lens to interpret price action, integrates psychological cycles with technical signals, and is adaptable to modern tools like candlestick patterns, algorithmic trading and AI-driven sentiment analysis.

The three trends in detail

Primary trend

The dominant, long-term movement, reflecting broad market sentiment and economic fundamentals, typically one year or more. Three categories:

Trend type	Description	Market sentiment
Bull market	Sustained upward movement driven by optimism, growth and liquidity	Confidence and expansion
Bear market	Prolonged decline, often triggered by economic contraction or crisis	Fear and contraction
Sideways / rangebound	Prices fluctuate within a horizontal range	Neutral or uncertain

Underlying drivers — macro forces: economic cycles (growth vs recession), monetary policy (interest rates, liquidity), fiscal policy (taxation, government spending), geopolitical stability, and investor psychology (risk appetite, herd behaviour).

Tools to identify them — moving averages like the 50 or 100 DMA; trendlines connecting successive highs and lows; Dow Theory volume and index confirmation; MACD for momentum shifts; and the structural rule — higher highs/higher lows means bullish, lower highs/lower lows means bearish.

   BULLISH STRUCTURE              BEARISH STRUCTURE
   higher highs / higher lows     lower highs / lower lows

              /\                  \
        /\   /  \                  \  /\
       /  \ /    \  /              \/    \  /\
      /    v      \/                       \/  \
     /                                          \

Why it matters strategically: portfolio allocation (aligning asset classes with macro trends), risk management (dissuading counter-trend trades), and timing entries and exits — riding the trend rather than fighting it. In a bull market, trend-following strategies like buying breakouts or holding growth stocks tend to outperform; bear markets favour defensive sectors, hedging or short selling.

Secondary trend

An intermediate movement that corrects or retraces the primary trend, typically lasting a few weeks to several months, seen as a counter-movement within the larger bull or bear market.

Its role: secondary trends help markets digest prior gains or losses, shake out weak hands, and reset overbought/oversold conditions — essential for the health and sustainability of a long-term trend.

Primary trend	Secondary trend type	Description
Bull market	Correction	A temporary decline (often 10–20%) before the uptrend resumes
Bear market	Rally	A short-term bounce or recovery before the downtrend continues

These are called “pullbacks” in bull markets and “relief rallies” in bear markets.

Characteristics: they last 3 weeks to 3 months and sometimes more; the retracement ranges from one-third to two-thirds of the previous primary move (per Dow Theory); volumes are typically lower than the primary trend, indicating lack of conviction; and the market can be extremely volatile because moves are emotionally driven, especially around news events.

Catalysts: macroeconomic data releases (inflation, GDP, employment), central bank policy shifts, geopolitical events, earnings surprises or sector news, and technical exhaustion (overbought RSI or momentum divergence). These cause temporary sentiment shifts but not enough to reverse the primary trend unless they evolve into structural changes.

Tools: Fibonacci retracement (identifying likely reversal zones at 38.2%, 50%, 61.8%); trendlines and channels to visualise the boundaries; 50 DMA crossovers signalling a secondary move; volume analysis — declining volume during a correction suggests it’s temporary; and RSI/Stochastic for overbought/oversold conditions.

Case example — Nifty 50 (2020–2021): primary trend was the bullish post-COVID recovery; the secondary trend was the September–October 2020 correction of about 7% on global risk-off sentiment; the outcome was that the market resumed its uptrend and reached new highs by early 2021.

Tertiary trend

Short-term price movements within a broader trend, typically lasting a few days to a few weeks, often moving counter to the primary or secondary trend. Noise to long-term investors, but crucial for short-term and swing traders.

Characteristics: typically less than three weeks (some definitions extend to six weeks); highly volatile and reactive to news, earnings or geopolitical events; may show volume spikes during breakouts but volume patterns are less reliable than in primary trends; can move with or against the prevailing trend; and they reverse frequently and quickly, making them unreliable for long-term forecasting.

Tools: short-term moving averages (5-day, 10-day, 20-day EMAs), momentum indicators (RSI, Stochastic), candlestick patterns (Engulfing, Doji, Morning Star), volume analysis to confirm breakouts or spot false ones, and support and resistance levels, especially intraday or weekly pivots.

Why they matter: they help fine-tune entry and exit points within a larger trend; allow tight stop-loss placement and short-term hedging; reflect market psychology and reactions to news; and form the building blocks of larger chart patterns like flags, pennants and wedges.

Their risks: noise versus signal (misleading in choppy or sideways markets), whipsaws (false breakouts), and overtrading — being tempted to trade minor fluctuations, increasing transaction costs and risk.

The workbook’s image is worth keeping: the tertiary trend is “like the heartbeat of the market — quick, rhythmic, and sometimes erratic.” For swing or day traders it’s the difference between precision and a missed opportunity; for long-term investors it’s usually best ignored unless it signals a larger structural shift.

Reversal patterns

These are the candlestick patterns that signal a possible change of direction. I’ve drawn each one.

Hanging Man — bearish reversal

Occurs after an up move (which can be small or large but should include at least a few price bars moving higher overall). The candle has a small real body and a long lower shadow at least twice the size of the real body, with little or no upper shadow. The close can be above or below the open — it just needs to be near the open so the body stays small.

The long lower shadow shows sellers were able to take control for part of the trading period. Crucially, it is only an early warning signal — the next candle must close lower for it to be a valid reversal. Traders exit longs or enter shorts during or after the confirmation candle, not before.

   HANGING MAN (after an uptrend)

        /\
       /  \        ┌─┐  ← small real body, little/no upper shadow
      /    \       └─┘
     /               │
    /                │   ← long lower shadow, at least 2× the body
                     │
                  ▼ next candle must close LOWER to confirm

Hammer — bullish reversal

Similar to the hanging man but occurs after a price decline. It captures the sellers’ inability to take prices lower — by the end of the day the selling is absorbed and buyers push the price back near the open. The close can be above or below the open, but should be near it so the real body stays small. The tail should be at least two times the height of the real body.

Hammers indicate a potential reversal, but the price must start moving up following the hammer — this is confirmation. Trades are typically taken after the confirmation candle, not before.

   HAMMER (after a downtrend)

    \
     \               ┌─┐  ← small real body at the top
      \              └─┘
       \               │
        \              │   ← long lower tail, at least 2× the body
         \             │
                  ▲ price must move UP next to confirm

The two are the same shape — what changes their meaning is what came before. That’s a favourite exam trick.

Bullish Engulfing

Formed when a small red candlestick is followed the next day by a large green candlestick whose body completely engulfs the body of the previous day’s red candle. It is more likely to signal a reversal when preceded by four or more red candlesticks — so traders look not only at the two candles forming the pattern but also at the preceding candlesticks.

   BULLISH ENGULFING

     │        │
    ┌─┐     ┌───┐   ← large GREEN body completely
    │█│     │   │      engulfs the previous small RED body
    └─┘     │   │
     │      └───┘
            │
   small     large
    red      green

Bearish Engulfing

Can occur anywhere but has more significance after a price advance. A red candle completely engulfs the previous day’s green candle, usually indicating a pullback to the upside within a larger downtrend.

Three qualifiers matter: ideally both candles should be relatively long compared to surrounding price bars — two very small bars may technically form the pattern but it’s far less significant; it is the real body (the difference between open and close) that matters, and the down candle’s real body must engulf the up candle’s; and the pattern has less significance in choppy markets and should be ignored there.

   BEARISH ENGULFING

     │        │
    ┌─┐     ┌───┐   ← large RED body completely
    │ │     │███│      engulfs the previous small GREEN body
    └─┘     │███│
     │      └───┘
            │
   small     large
   green      red

Dark Cloud Cover — bearish

A two-candlestick pattern occurring near the top of the congestion area. (A congestion area is a price range where the market trades repeatedly over a period, typically lasting several weeks, before eventually breaking out upward or downward.)

In an existing uptrend, a bullish candle is followed by a gap up the next day, and that gap up turns into a bearish candle which closes below the midpoint of the previous bullish candle.

   DARK CLOUD COVER

              ┌───┐  ← gaps UP, then turns bearish
    ┌───┐     │███│
    │   │     │███│
    │   │ ····│███│ ← closes BELOW the midpoint
    │   │     └───┘    of the first candle
    └───┘
    bullish    bearish

Piercing Pattern — bullish

A two-candlestick pattern occurring near the bottom of the congestion area. The first candle is red (a down day), the second is green (an up day). The green candlestick follows the red one with a significant gap between the red candle’s close and the green candle’s open, and the green body must cover at least half of the previous day’s red candlestick.

   PIERCING PATTERN

    ┌───┐
    │███│           ┌───┐  ← opens with a GAP DOWN
    │███│ ··········│   │
    │███│           │   │ ← closes ABOVE the midpoint
    └───┘           └───┘    (covers at least half)
     red            green

Note the symmetry: Dark Cloud Cover is bearish at a top; Piercing is bullish at a bottom — and both are two-candle patterns. The exam’s sample question tests exactly this (piercing = two candles, near the bottom).

Morning Star — bullish

A three-candlestick visual pattern interpreted as a bullish sign, made up of a tall red candlestick, then a smaller red or green candlestick with a short body and long wicks, then a third tall green candlestick. The middle candle captures a moment of market indecision where the bears begin to give way to bulls, and the third candle confirms the reversal and can mark a new uptrend.

   MORNING STAR (bullish, 3 candles)

    ┌───┐                     ┌───┐
    │███│                     │   │
    │███│      │              │   │
    │███│     ┌┐              │   │
    └───┘     └┘              └───┘
              │
    tall     small          tall green
     red    indecision      (confirms)

Evening Star — bearish

The mirror image: three candles — a large green candlestick, a small-bodied candle (red or green), and a long red candle. The first bar is a large green candle located within an uptrend; the middle bar is small-bodied and closes above the first green bar; the last bar is a large red candle that opens below the middle candle and closes near the centre of the first bar’s body.

   EVENING STAR (bearish, 3 candles)

              │
             ┌┐
    ┌───┐    └┘             ┌───┐
    │   │     │             │███│
    │   │                   │███│ ← closes near the centre
    │   │                   │███│    of the first candle's body
    └───┘                   └───┘

   tall green  small        tall red
   (in uptrend) indecision  (confirms)

Consolidation (continuation) patterns

Symmetrical Triangle

Represents a period of consolidation before the price is forced to break out or break down. A breakdown from the lower trend line marks the start of a new bearish trend; a breakout from the upper trend line indicates the start of a new bullish trend. The workbook notes it is also known as a wedge chart pattern.

   SYMMETRICAL TRIANGLE

   \                    /
     \    /\          /
       \ /  \  /\   /        ← both trendlines converge
         \   \/  \/
           \      /
             \  /
              \/     → breakout either way

Ascending Triangle — bullish continuation

Forms when the market makes a series of higher lows while repeatedly testing the same resistance level. It typically appears during an uptrend and is a bullish continuation pattern, signalling strengthening buying pressure and a potential breakout above the resistance zone. Bulls gain almost full control, running up to the top resistance line.

The rules: the trendlines need to run along at least two swing highs and lows; a long trade is taken if price breaks above the top of the pattern and a short trade if it breaks below the lower trendline; and the profit target is calculated by taking the height of the triangle at its thickest point and adding or subtracting it to/from the breakout point.

   ASCENDING TRIANGLE (bullish)

   ────────────────────────  ← flat RESISTANCE, tested repeatedly
      /\    /\   /\  /\
     /  \  /  \ /  \/
    /    \/    v            ← rising support: HIGHER LOWS
   /
        target = triangle height added to breakout point

Descending Triangle — bearish continuation

Formed when the market makes lower highs and the same level lows. It’s a signal to traders to take a short position to accelerate a breakdown, is normally seen in a downtrend and is a continuation pattern. Bears gain more control, running down to the bottom support line. It is detectable by drawing trend lines for the highs and lows on a chart.

   DESCENDING TRIANGLE (bearish)

   \
    \    /\
     \  /  \  /\             ← falling resistance: LOWER HIGHS
      \/    \/  \  /\
   ────────────────────────  ← flat SUPPORT, tested repeatedly

Flags and Pennants

Continuation patterns traded in the same way but with slightly different shapes — the terms are often used interchangeably. Both form when the price moves sideways or slightly lower after a sharp rally. That sideways movement takes the form of a rectangle (flag) or a small triangle (pennant), which is where the names come from. Trendlines can be drawn along the highs and lows of the sideways action.

The sharp price rise preceding the flag or pennant is called the flagpole. The sideways period is often followed by another sharp rise, creating the trading opportunity. Once the flagpole and the flag or pennant have formed, traders watch for the price to break out above the upper flag/pennant trendline and then enter a long trade.

   FLAG                          PENNANT

        ┌────┐  ← flag              /\   ← pennant
       /│    │      (rectangle)    /  \      (small triangle)
      / └────┘                    /────\
     /                           /
    /  ← flagpole               /  ← flagpole
   /   (sharp rally)           /   (sharp rally)

Support and Resistance

Support is a price level where a downtrend is expected to pause due to a concentration of demand — a “floor” price struggles to break below. Resistance is a level where an uptrend is expected to pause due to a concentration of supply — a “ceiling” price struggles to break above.

   ═══════════════════════════════  RESISTANCE (ceiling)
        /\        /\        /\
       /  \      /  \      /  \
      /    \    /    \    /    \
   ═══════════════════════════════  SUPPORT (floor)

Why they matter: they act as psychological anchors because traders remember past levels where reversals occurred; they lead to order clustering as buy and sell orders accumulate near these levels; they enable better risk management by defining stop-loss and take-profit zones; and breakouts or bounces from these levels confirm trend direction.

The six types:

Type	Description	Example
Horizontal	Flat levels where price repeatedly reverses	A stock resisting around ₹1,950
Trendline	Diagonal lines connecting higher lows (support) or lower highs (resistance)	Upward sloping support in a bull trend
Moving averages	Dynamic support/resistance based on averages	Price bouncing off the 50 DMA
Fibonacci levels	Derived from retracement ratios (23.6%, 38.2%, 61.8%)	Stock retracing 23.6% from a swing high
Pivot points	Calculated from the previous period’s high, low, close	Generally used in intraday trading
Psychological levels	Round numbers (₹1,000, ₹10,000) acting as barriers	Nifty 25,000 as a psychological level

Role reversal. Once a support level is broken it often becomes new resistance, and vice versa — because of trapped traders exiting at breakeven, a shift in market sentiment, and repositioning of institutional orders.

   BEFORE THE BREAK        AFTER THE BREAK

   ─────────────────  →   ─────────────────
      support                 resistance
   price bounces UP        price now rejected
   off this level          DOWN from it

Breakouts and false breakouts. In a breakout, price moves decisively beyond the level with volume confirmation. In a false breakout, price temporarily breaches the level but quickly reverses, trapping traders. Volume and candlestick confirmation (bullish engulfing, hammer) help validate breakouts.

Tools to identify them: swing highs/lows and consolidation zones; indicators like MACD, Bollinger Bands, RSI and chart patterns like double tops/bottoms, head and shoulders, triangles; volume confirmation, since high volumes often align with key levels; and multi-timeframe analysis — a level aligning across daily and weekly charts is more significant.

Quantifying the strength of a level:

Factor	Implication
Number of touches	More touches indicate a stronger level
Volume at the level	Higher volumes indicate greater conviction
Time spent near the level	Longer consolidation means more significance
Recency	Recent levels carry more weight

Strategic applications: bounce trades (buy near support, sell near resistance); breakout trades (enter on confirmed breakout with volume); pullback entries (wait for price to retest broken levels); and stop-loss placement just below support or above resistance.

Limitations: levels are zones, not exact prices; there’s subjectivity since different traders draw them differently; market conditions matter because in a trending market levels may be less respected; and news and events can easily override technical levels.

Advanced concepts: order blocks (institutional buying and selling zones), liquidity pools (areas where stop orders cluster), VWAP (Volume-Weighted Average Price — a dynamic level often used by intraday traders), and anchored VWAP, tied to a specific event such as earnings or a breakout.

Case study: Nifty found strong support around 24,350 from May to September 2025 after multiple tests; Reliance Industries faced strong resistance around 1300 from October 2021 to July 2023, acting as both a psychological and technical resistance, before the breakout in January 2024.

Trendlines and Channels

A trendline is a straight line connecting two or more price points, extended into the future to act as support or resistance. An upward sloping trendline connecting higher lows indicates bullish momentum; a downward sloping trendline connecting lower highs indicates bearish momentum; and a sideways trendline connecting horizontal highs and lows indicates consolidation or a rangebound market.

Construction rules: it requires at least two points, while three or more increase reliability. Traders sometimes use wicks, other times closing prices, depending on the strategy — and the trendline should be adjusted as new price data emerges. It’s used for identifying trend strength, timing entries and exits, and placing stop-losses.

A channel is formed by drawing two parallel trendlines — one connecting highs, one connecting lows — encapsulating price movement within a defined range.

   ASCENDING CHANNEL                DESCENDING CHANNEL

              /                    \
        /\   /                      \  /\
       /  \ /   ← parallel           \/    \
      /    v      trendlines               \  /\
     /                                      \/    \
    /                                              \

   higher highs / higher lows      lower highs / lower lows
   = BULLISH                        = BEARISH

An ascending channel has higher highs/higher lows and is bullish; a descending channel has lower highs/lower lows and is bearish; a horizontal channel has equal highs and lows, indicating a rangebound market. To construct one, start with a valid trendline (support or resistance) and draw a parallel line from the opposite swing point. The width of the channel reflects volatility. The standard approach is to trade within the channel — buy at support, sell at resistance — and a breakout or breakdown occurs when price goes through resistance or support, with potential price targets measured by projecting the channel width.

Trendline strategies: bounce trades (enter on price touching the trendline with confirmation, e.g. a bullish candle); breakout trades (enter on decisive breakout with volume); and trailing stops (use the trendline to trail stop-losses in trending markets).

Channel strategies: range trading (buy near the lower boundary, sell near the upper); breakout trading (enter on breakout with retest confirmation); and channel width targeting (project the breakout move using channel height).

Validation techniques: volume confirmation (breakouts with rising volume are more reliable); candlestick patterns near trendlines/channels (engulfing, hammer, shooting star); indicators (RSI divergence, MACD crossovers near boundaries); and multi-timeframe alignment — lines visible on higher timeframes carry more weight.

Common pitfalls: forcing lines (drawing them to fit your bias rather than the price); ignoring breakouts (not adjusting lines after invalidation); and overreliance (using trendlines without confirmation from other tools).

Case study — Reliance Industries: an uptrend line connecting lows from ₹1,100 to ₹1,400 in 2023; a parallel line from swing highs created an ascending channel; and price broke above the channel in early 2024 with volume spikes, signalling bullish continuation.

The technical indicators

Moving Averages

A smoothened version of prices, consisting of the average of daily, weekly or monthly closing prices. They identify trends — when the MA points up the trend is upward and vice versa. They are lagging indicators but very useful for identifying major trends.

When monthly, weekly and daily MAs move in the same direction, there’s a strong probability of the current trend continuing. When a stock trades at or near a rising MA, it could be a good time to buy — and vice versa.

The workbook recommends a specific combination: 13, 21 and 34 period EMAs, based on the Fibonacci series. The structural rules:

In an uptrend: Price > 13 EMA > 21 EMA > 34 EMA. In a bull market the price usually takes support around its 34 EMA. When all three averages are rising and moving away from each other, it indicates a strong bull market.

In a downtrend: Price < 13 EMA < 21 EMA < 34 EMA. The price generally resists around its 34 EMA. When all three are falling and moving apart, it indicates strong selling pressure.

This combination gives an early indication of a shift in momentum towards the buying or selling side.

   BULLISH STACK              BEARISH STACK

   Price      ─────           34 EMA     ─────
   13 EMA    ─────            21 EMA    ─────
   21 EMA   ─────             13 EMA   ─────
   34 EMA  ─────              Price   ─────
           (all rising,               (all falling,
            fanning out)               fanning out)

MACD (Moving Average Convergence Divergence)

Shows shifts in momentum and confirms the likelihood of a trend remaining in force — and any shift in momentum can sometimes give an early warning of a trend change.

The construction (a near-certain exam question): the default MACD line is the difference between the 26 EMA and the 12 EMA. The short-term average constantly converges towards and diverges away from the long-term average — hence the name. The MACD slow line (signal line) is the 9 EMA of the default line.

The signals:

With both lines rising, buy when the fast MACD crosses the slow MACD. Also buy when the fast MACD is already above the slow line and makes a new upturn after almost touching it — indicating both price and MACD are starting a fresh up move.
MACD can act as a leading indicator by showing momentum shifts not yet evident on the price chart. Price makes a higher high but MACD makes a lower high → the stock is losing upward momentum. Price makes a new low but MACD makes a higher low → the stock is losing downward momentum and is likely to bottom out.
An established uptrend is likely to continue when the fast MACD is above the slow MACD and both lines are rising (and vice versa).
The zero baseline distinguishes confirmed bull from confirmed bear markets — but a crossover over the zero baseline should not be used for trading. (Note that carefully; the case study tests it.)
A steep MACD suggests a powerful move; a shallow one indicates lack of power. The fast MACD normally draws away from the slow MACD when price momentum is accelerating.
The trend is in place when the two lines maintain a constant distance from each other. A bulge in the fast MACD far above the slow MACD indicates a buying climax, which can lead to a sideways market or mild correction — and the reverse applies in a downtrend.
In a strongly trending market, MACD can go flat or change direction without signalling a trend reversal — momentum has simply gone out of the stock for the time being, and the trend may resume after consolidation.
MACD sometimes gives a false signal by reversing direction after a strong move — this doesn’t mean reversal; the stock is merely losing speed in its rate of climb or descent.
MACD shows changes in momentum, not necessarily in price — so it must be used with other indicators and price action.
When MACD makes a double top or bottom, a trend reversal could be likely.
Avoid stocks when the weekly or monthly MACD is clearly trending down.

   BEARISH DIVERGENCE (warning at a top)

   PRICE:    /\        /\  ← higher high
            /  \      /
           /    \    /
                 \  /

   MACD:     /\
            /  \    /\     ← LOWER high
           /    \  /
                 \/

RSI (Relative Strength Index)

Measures the speed and magnitude of a security’s recent price changes to evaluate overvalued and undervalued conditions, displayed as an oscillator on a scale of zero to 100.

It can be a lead indicator, identifying securities poised for a reversal or corrective pullback, and it performs well in a market that is in a trading range.

The levels: a stock is usually overbought above 70 and oversold below 30. But the nuance matters more than the headline numbers: in a bull market the RSI will rarely fall below 44–45, and in a bear market it will rarely rise above 50–55. And critically, RSI can remain overbought (70+) for a long period in a strongly trending bull market, and can remain oversold (30 and below) for a long period in an extremely bearish market — which is why it isn’t reliable on its own in a strong trend.

Divergences: in an oversold market, if the stock makes a new low while RSI does not, that’s a bullish divergence — an early buy signal. In an overbought market, if the stock makes a new high while RSI does not, that’s a bearish divergence — an early sell signal.

   RSI SCALE

   100 ┐
       │
    70 ├──────────  OVERBOUGHT (can stay here in a strong bull)
       │
    50 ├ ─ ─ ─ ─ ─  midline
       │
    30 ├──────────  OVERSOLD (can stay here in a strong bear)
       │
     0 ┘

ADX (Average Directional Index)

Measures the strength of a trend and is widely used as a trend indicator. It quantifies trend strength, with calculations based on a moving average of price range expansion over a given period. The default setting is 14 bars, though other periods can be used. It can be applied to stocks, mutual funds, ETFs and futures, and is plotted as a single line with values from zero to 100.

The essential point: ADX does not identify the direction of the market — it registers trend strength irrespective of whether price is trending up or down.

It’s normally plotted with two Directional Movement Indicators: +DMI and −DMI.

The rules: an ADX below 25 is generally a weak trend or no trend; a rising ADX, particularly if it has crossed 25, indicates a strong trend. When +DMI crosses over −DMI from the lower side and ADX is also rising, it’s a buy signal. When +DMI crosses down −DMI from the upper side and ADX is rising, it’s a sell signal. And the warning: avoid the DMI crossovers and crossdowns if the ADX value is weak — it is highly unlikely the trade will succeed.

   ADX READING

    100 ┐
        │   strong trend
     25 ├──────────────────  ← the key threshold
        │   weak / no trend
      0 ┘

   BUY : +DMI crosses ABOVE −DMI, with ADX rising above 25
   SELL: +DMI crosses BELOW −DMI, with ADX rising above 25

RSC (Relative Strength Comparative)

Also known as the Relative Strength Indicator or Price Relative Indicator. It uses a ratio chart to compare the performance of one security to another.

Its three uses: gauging a stock’s performance against a benchmark index such as the Nifty50; evaluating a stock’s performance relative to its sector or industry group to determine whether it’s outperforming or underperforming peers; and identifying stocks that hold up well during broad market declines or show weakness during market upswings.

How to use it: a 5–6 year time frame should be sufficient for calculating RSC; select the benchmark (Nifty50); the RSC value is normalized to 100 and plotted against the price. A value greater than 100 means the stock is outperforming the benchmark; a value less than 100 means it is underperforming. And the buy signal: the stock becomes a good buy if it has remained below 100 for a long period and then the RSC turns up and crosses 100.

OBV (On Balance Volume)

Created by adding each day’s volume to the cumulative total if the day’s closing price is higher than yesterday’s, and subtracting each day’s volume if today’s close is lower than yesterday’s.

   OBV CALCULATION

   Close HIGHER than yesterday  →  OBV = previous OBV + today's volume
   Close LOWER  than yesterday  →  OBV = previous OBV − today's volume

When plotted, OBV should steadily rise with rising prices and steadily fall with declining prices. In a divergence between volume and price, volume generally precedes price — at times giving advance warning of a trend reversal.

How it’s read: the OBV line (OBV 1) is normally read with its 20-period average (OBV 20). The trend is very bullish if OBV 1 establishes an upward zigzag above a steadily rising OBV 20 on the weekly or monthly chart, and very bearish if OBV 1 establishes a downward zigzag below a steadily falling OBV 20.

The signals: when OBV 1 crosses the rising OBV 20 on the upside, it’s a buy; when OBV 1 crosses the falling OBV 20 on the downside, it’s a sell. Also buy when OBV 1 is above OBV 20 and makes a new upturn, indicating fresh momentum.

The stock is in a strong uptrend if both OBV lines have started rounding upward for a long time on weekly or monthly charts. A bulge in OBV 1 far beyond OBV 20 indicates a buying climax.

And the most valuable reading: a pronounced weakening of the OBV line on long-term charts can give an early indication of a trend reversal — it indicates that smart money may be exiting at higher levels without making it obvious. Similarly, if a higher high in price is not accompanied by a higher OBV 1, buying pressure is likely fading. When buying a stock, the weekly and daily OBV charts should normally confirm an OBV buy signal on the monthly chart.

The workbook’s example: in the weekly chart for Maharashtra Scooters, the OBV line started moving upwards from May 2023, and the stock delivered 4× returns from there.

The workbook’s closing summary

Technical analysis remains a cornerstone of market forecasting, blending price patterns, volume trends and investor psychology. It empowers traders to make informed decisions without relying on fundamental data. While not infallible, its tools offer valuable signals. Success hinges on discipline, risk management and understanding market context, and it’s most effective when combined with broader macroeconomic insights and sentiment analysis. Critics argue it can be self-fulfilling — yet its widespread use reinforces its relevance. Adaptability to changing market regimes is key. Ultimately it is a guide and not a guarantee, requiring skill and continuous learning: its value lies in helping traders interpret market behaviour and manage uncertainty.

How this chapter is tested

Fifteen marks — the heaviest chapter in the syllabus — and it comes with both standalone MCQs and a full case study, which tells you how seriously the exam treats it.

The five standalone samples show the style, and every one is a definition or a number: which is not a Dow tenet (“the market has four trends” — there are three); which feature a hanging man is unlikely to have (that it’s bullish after a down move — it’s bearish after an up move; that’s the hammer’s setup); the piercing pattern‘s features (two candlesticks, near the bottom of the congestion area); the default MACD line (26 EMA minus 12 EMA — note all four options are plausible-looking EMA pairs); and the RSI truth (stock makes a new low but RSI doesn’t = bullish divergence).

The case study — a Nifty weekly chart from December 2022 to October 2025 — is worth studying because it shows the reasoning being tested. The setup: Nifty bottomed around 16,900 in March 2023, rallied to a peak in September 2024, then traded sideways for over a year with a negative bias. The four questions probe: RSI staying overbought during a strong trend (Dec 23–Sep 24); whether RSI can fall below 40 in a strong bull market (recall: it rarely falls below 44–45, so this is the “not likely to be true” answer); the negative divergence in September 2024 where Nifty made a new high but MACD did not; and the MACD mechanics — including the trap that “initiate a long trade if MACD moves over the zero line” contradicts the workbook’s explicit statement that a zero-line crossover should not be used for trading.

The numbers to have automatic: MACD = 26 EMA − 12 EMA, signal = 9 EMA of that line. RSI 70 overbought / 30 oversold, with 44–45 and 50–55 as the bull and bear market floors and ceilings. ADX 14 bars default, 25 threshold, 0–100 scale, and it measures strength not direction. Moving average combination 13/21/34 EMA (Fibonacci), with the 34 EMA as support in bull markets. OBV read against its 20-period average. RSC normalized to 100, over a 5–6 year window. Fibonacci retracements 23.6%, 38.2%, 50%, 61.8%. Secondary trends retrace one-third to two-thirds and last 3 weeks to 3 months; tertiary trends last under three weeks (up to six). Dow’s editorials 1900–1902, formalized by Hamilton and Rhea.

The classification traps: hammer vs hanging man (same shape, opposite context); bullish vs bearish engulfing (which body engulfs which); dark cloud cover vs piercing (both two-candle, top vs bottom); morning vs evening star (both three-candle, bullish vs bearish); ascending (flat resistance, rising support) vs descending (falling resistance, flat support) triangles; flags (rectangle) vs pennants (triangle) — both continuation, both after a flagpole; and the three trend tiers with their durations.

My approach for this chapter: since it’s 15 marks and largely visual, I’m making a single one-page sheet of hand-drawn patterns — every candlestick pattern sketched with its name and whether it’s bullish or bearish, and every triangle/flag drawn with its breakout direction. Then a second card of just the indicator numbers. Patterns are recognised, not recalled — so drawing them yourself once beats reading them five times. And because this chapter is new to the exam and absent from older material, the workbook itself is the only reliable source — which is exactly the argument I made in my very first post for reading it rather than chasing shortcuts.

That’s Chapter 15, and the heaviest chapter in the syllabus is done.

Note: These are my personal study notes as I prepare for the NISM-Series-XV Research Analyst exam. They are for learning purposes only and are not investment advice.