Technical analysis
Four pillars and one rule for verification. Anything that cannot be tested over 100 historical trades with positive expectancy is an opinion, not a method.
Technical analysis rests on four pillars: market structure (the sequence of highs and lows), relevant levels (zones where there was previously an imbalance between supply and demand), the context of the higher timeframe and the measurement of volatility through the ATR. Indicators are derivatives of price and lag by definition; their function is not to generate signals but to filter. Any rule of technical analysis is only worth something if it is tested on historical data by calculating the expectancy.
1. Market structure: the basis of everything
A trend is defined neither by an indicator nor by the slope of a line, but by the sequence of extremes.
- Uptrend: each successive high is higher than the last (Higher High) and each successive low is higher than the last (Higher Low).
- Downtrend: Lower High and Lower Low.
- Range: the extremes oscillate within a horizontal corridor, with no consistent displacement.
Break of Structure (BOS)
An uptrend is considered broken when the price closes below the last relevant low. Closes, rather than piercing with a wick. This distinction matters: most false signals arise from trading wicks instead of closes.
Trade in the direction of the higher timeframe's structure. If the daily chart shows an uptrend and the 15-minute chart a downtrend, a short position on M15 trades against the dominant flow: it can work, but the context is against you and the target should be proportionally more modest.
2. Support and resistance
A level is not a line, it is a zone. The exact price 1.0850 does not matter; what matters is the 1.0845–1.0860 band where a volume imbalance previously occurred.
How to build the levels
- Open the daily or 4-hour chart.
- Mark the areas the price left with a sharp impulse: these are traces of unfilled orders.
- Mark the levels that have been tested at least twice.
- Pay attention to polarity change: broken resistance starts working as support, and vice versa.
- Do not draw more than 5–7 levels on the chart. Twenty levels are the same as none.
What strengthens a level: coinciding with a round number, coinciding with a level from the higher timeframe, coinciding with the previous day's or week's high or low, a high number of touches without a break, and the sharpness with which the price moved away from the level.
3. Candlestick analysis: what actually works
Of the dozens of patterns described, only a few behave in a statistically stable way, and only in the right context.
| Pattern | Where it makes sense | What it shows |
|---|---|---|
| Pin bar (long wick) | On a relevant level, after a move | Price rejected; a large participant entering against the move |
| Engulfing | At the edge of a range or on a level | A change of control between buyers and sellers |
| Inside bar | At a point of consolidation | Compression of volatility before an impulse |
| False break | At the edge of a level | Liquidity taken beyond the level before the turn |
A pattern in the middle of a range means nothing. A pattern only makes sense on a level marked in advance and in agreement with the structure. The pattern is the entry trigger, not the reason for the trade.
4. Indicators: what they are for and where they stop
Every indicator is calculated from past prices and therefore lags. Their correct use is to filter and measure, not to generate signals.
Moving averages (MA)
The EMA(50) and the EMA(200) are used to determine direction. The rule “price above the EMA200, we only consider buys” rules out counter-trend trades. Moving average crossovers as an entry signal give low expectancy in the currency market, because of the high number of false signals in a range.
RSI (14)
A common mistake: reading an RSI above 70 as a sell signal. In a strong trend the RSI stays in overbought territory for weeks. What does add practical value is divergence: the price makes a new high and the RSI does not, which indicates a loss of momentum.
MACD
Shows a change in momentum. It is useful as a confirmation filter on the higher timeframe, not as an independent signal.
ATR (14)
The average true range is the most underrated indicator. It gives no signals, but it answers the question “what move is normal for this instrument”. A stop loss placed closer than 1.0 ATR will be swept by market noise with high probability, however sound the idea may be.
Volume
Sening Capital shows tick volume — the number of price changes — not the real volume of trades, because the currency market is decentralised. Tick volume correlates with the real figure at around 0.85: it is useful for assessing relative activity, but not for exact conclusions.
5. Multi-timeframe analysis
Trading on a single timeframe is the main cause of trading against the market.
| Timeframe | Function | What it determines |
|---|---|---|
| Higher (D1 / H4) | Context | Direction of the structure and key levels |
| Working (H1 / M30) | Zone | Entry point and zone of interest |
| Lower (M15 / M5) | Trigger | Moment of entry and stop placement |
Proportion rule: adjacent timeframes should be in a ratio of roughly 1:4 or 1:6. D1 → H4 → H1 is correct; D1 → M1 is not, because all the intermediate context is lost between them.
6. Confluence
An isolated signal is worth little. What works is the coincidence of several independent factors at the same point.
- The daily structure is bullish (Higher High, Higher Low).
- The price has pulled back to a support zone that previously acted as resistance.
- The zone coincides with the EMA(50) on H4.
- On H1 a pin bar with a long lower wick has formed.
- The RSI on H1 has come out of oversold territory.
- More than 3 hours remain until the next high-importance event.
- The nearest resistance is further away than 2 times the distance to the stop (risk/reward ratio ≥ 1:2).
The absence of points 1, 2 or 7 is reason enough not to enter. Not entering is a trading decision as legitimate as entering, and statistically more profitable than forcing the trade.
7. How to test any rule
Every claim in technical analysis is tested the same way: 100 trades following the rule on historical data, recording the result in R-multiples and calculating the expectancy. If expectancy is negative, the rule does not work for you, no matter who recommends it.
The test is run in the Sening Capital built-in tester on historical quotes over a period of no less than 2 years, covering both trending and ranging phases. A system validated only on a trending stretch will fail as soon as the market moves into a range.
Structure, levels and risk/reward
Switch between bullish structure, bearish structure and a break, and move the stop and target sliders to see how the required win rate changes.
Test: technical analysis
9 questions with explanations. They check: defining a trend by structure rather than by indicator, the difference between a wick piercing a level and a close beyond it, the role of the ATR, the behaviour of the RSI in a trend, building a level as a zone, the correct proportion between timeframes, the relevance of a pattern away from a level and the nature of tick volume.
Frequently asked questions
No indicator is reliable on its own: all of them are calculated from past prices and lag. The one of greatest practical use is the ATR, because it measures the normal size of a move and allows the stop loss to be placed correctly. Indicators should be used as filters, not as a source of signals.
A level is drawn as a zone, not as a line. On the daily or 4-hour chart, mark the areas the price left with a sharp impulse and the levels with two or more touches. Take polarity change into account: broken resistance becomes support. Do not draw more than 5 to 7 levels on the chart.
In a range, to a limited extent; in a trend, no. In a strong trend the RSI can stay above 70 for weeks, and selling on that signal produces a run of losses. What does have practical value is divergence: the price makes a new extreme and the RSI does not follow.
Three: the higher one for context and for defining structure, the working one to locate the entry zone and the lower one for the entry point and stop placement. The ratio between adjacent timeframes should be roughly 1:4 or 1:6, for example D1, H4 and H1.
No. Sening Capital shows tick volume, that is the number of price changes in the period, not the actual volume of trades. In a decentralised currency market real volume is not available. Tick volume correlates with the real figure at around 0.85 and serves to assess relative activity.
No. A pattern is an entry trigger, not a reason to trade. It only makes sense on a level marked in advance and in agreement with the structure of the higher timeframe. The same pattern in the middle of a range appears dozens of times with no consequence whatsoever.
Test your rules before you apply them
The Sening Capital built-in tester runs any rule over history and returns expectancy and drawdown. Without that step, a rule is just an opinion.
Minimum deposit 250 USD · Verification within 24 hours · Withdrawals processed within 24 hours