in this post, we are going see that how The Charts Are made and how they can Be Used with Indicators, Oscillators and Other Tools Make Better Trading as well as Investing Decisions. We already saw that Technical chart analysis is based upon the study of the market price action itself, while fundamental analysis studies the reasons or causes for prices going up or down and if we combine both of them in chart analysis, which studies the effect of the price movement itself.
This can be divided into 3 segment which are chart basic, types of charts and chart Explanations tools.
- In Chart basics, we will learn about what are charts, how they formed, what is chart price scaling and which the best chart timeframes are for Trading or investing.
- To learn about types of charts, watch our previous video of type of charts in the stock market.
- Chart Explanations tools study will includes various on chart drawing tools for price trend analysis and to predict price targets and stop loss for risk management.
What are charts?
A price chart is a sequence of prices plotted over a specific timeframe. In statistics, chart also known as time series plots. On the chart, the vertical axis represents the price scale and the horizontal axis represents the time scale. Prices are plotted from left to right across the horizontal axis with the most recent plot being the furthest right. Charts provide an easy-to-read graphical representation of a stock price movement over a specific period of time.
Technicians, technical analysts, and chartists use charts to analyze price data of securities and forecast future price movements, but they can also be of great benefit to fundamental analysts. The word “securities” refers to any tradable financial instrument or measurable index such as stocks, bonds, commodities, futures or market indices. Any security with price data over a period of time can be used to form a chart for price analysis.
Let see following examples, this first candlestick chart is of Dow jones industrial average index. To know more about candlestick chart, please watch our previous video of types of chart. Here each candle represent daily price of DJIA. And this chart is of last 3 months from 16 October 2017 to now 16 January 2018. On chart you can clearly see positive days shown as red while positive days represented by green candles. And you can see that on 16 October, down was trading around 23000 and now trading well above 26000 levels means in last 3 months down rallied from 23000 to 26000+ means 3000 points rally means 3000 divided by 23000 and multiplied by 100, comes around 13% plus gains in these 3 months. All this is shown and can be calculated by the help of the chart.
Let see this second yearly chart of Dow jones from 1985 to 2018. This is bar chart and here each bar represent 1 year’s move of Dow jones. To know more about bar chart, please watch our previous video of types of chart. On chart you can see that DJIA in 1885 was trading just above 1000 mark and now trading just above 26000 means gained 25000 points in last 33 years and if we calculate in terms of percentage then this comes as 2500% gains from low to current high.
All these and more can be done with the help of chart and that why charts are useful is trading as well as in investing. We will continue to see in upcoming posts so stay connected.