Technical Analysis Chart

Using Technical Analysis Chart information in Your Investing?

Technical Analysis is the forecasting of future price movement based on the examination of past price movements. Technical analysis does not result in absolute predictions about the future. Instead, technical analysis helps investors anticipate what is "likely" to happen to prices over time. Technical analysis uses a wide variety of technical analysis charts which display a stock's price and volume.A technical analysis chart is a sequence of prices plotted over a specific time frame. On the chart, the y-axis (vertical axis) represents the price scale and the x-axis (horizontal axis) represents the time scale. Prices are plotted from left to right across the x-axis with the most recent plot being the furthest right. At the bottom of the chart the volume for each time period is plotted with vertical bars.

Three primary types of technical analysis charts

  1. Line Chart- is charted only with the closing price. The open, high or low and intraday swings are ignored
  2. Bar Chart (OHLC Chart)- is perhaps the most popular technical analysis chart. The high, low and close are used to form the price plot for each period of a bar chart.
  3. Candlestick (Japanese Candlestick) - Candlestick charts display the open, high, low, and closing prices in a format similar to a modern-day bar-chart, but in a manner that extenuates the relationship between the opening and closing prices. It gives the chart or the candlestick almost a three dimensional effect. Each "bar " is called a candle. Price patterns can been seen more clearly and distinctly with candlesticks.

Price is definitely more important than volume but volume confirms the price action and often gives advance warning of an impending shift in trend. Volume measures the momentum behind a given price move

Moving averages are a very an integral part of technical analysis charts. A moving average is constructed by averaging several day's closing prices, however, it tends to lag behind the price action. The shorter the average (meaning the fewer days used in its calculation), the more sensitive it is to price changes and the closer it trails the price action.

A Technical Analysis Chart allows a trader to visually identify:

  1. Price Trends- Up Trend, Down Trend
  2. Support and Resistance Areas
  3. Strength and Maturity of Trend
  4. Entry Levels for trades and investmentsv
  5. Trading Ranges
  6. Chart Patterns

A Chart Pattern is a pattern that develops based upon the price of a stock and reflects changing expectations of the market. Patterns can develop over several days, months or years. While no two patterns are the same, they are very close and can be used to predict price movements.

Common Technical Analysis Chart Patterns

  1. Head-and-Shoulders Patterns: The head and shoulders is considered one of the most reliable patterns. This is considered to be a reversal pattern when a stock is topping out.
  2. Triangles: A triangle is when the range between the highs and lows narrows. These occur when prices are bottoming or topping out. As the prices narrow, this will signify that the stock could break out to the up- or downside in a violent fashion.
  3. Double Tops: A double top occurs when prices rise to a certain point on heavy volume and then retreat. You will then see a retest of that point on decreased volume. At this point, a decline will take place and the stock will head lower.
  4. Double Bottoms: A double bottom is when prices will fall to a certain point on heavy volume. It will then rise and fall back to the original level on lower volume. Unable to break the low point, prices will then start to rise.
  5. Cup and handle: is a bullish chart pattern that is defined by a chart where a stock drops in value, then rises back up to the original value, then drops a small amount in value, and then rises a small amount in value.

By learning how to read a technical analysis chart a trader can analyze- What is the price? Where has it been? Where is it going?

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