Basics of Technical Analysis

Submitted by Stock Market News on 13 May, 2011 - 13:15

Types of charts in technical analysis

You won't be able to predict market changes, but there are ways to gain insight on its movements. Traders can use indicators that can help them in future trades. If you prefer to keep an eye on price movements, you will be using technical analysis. In simple terms, its the use of charts to interpret price movements of a particular stock or the market as a whole. This analysis believes that buying, selling, information and psychology of traders play a factor in the movement of a stock price.

One of the biggest advantages of Technical Analysis is its ability to convert tables of data into a chart. This provides a simple snapshot of a company's stock price. You will also be able to see its past movements and easily determine if its going anywhere. There are different charts that are used. Traders can choose from a line, bar and candlestick chart.

The most common type is the line chart. It shows the general direction of a stock price. They are a simple guide to see the movement of a price in a period of time. However line charts are limited to one point in single time period. They do not represent fluctuations and variations of a stock price.

For a more complete price range, Bar charts are used. It takes the information from the day's share trading and plot it on a single bar. Bar charts plot a price data on a vertical bar, with each part representing a price. A tab on the left can be the open price, the one on the right is the closing price, the top is the highest price and the bottom is the lowest price. You can plot a daily, weekly, monthly bar chart. This chart shows the interaction between buyers and sellers.

Candlestick charts originated from Japan. They are constructed with the same information that's used by a bar chart, but a rectangle is used to indicate whether the stock closed higher or lower. The rectangle is filled with a colour depending if its up or down. Its also called the body and the lines above at the top and the bottom are called shadows, tails, or wicks.

These three are the basic charts used, and can come in combinations. You won't be able to make an accurate forecast, but you can use the data to help you make decisions in future trades. Use the information to see price action, and discover how you can use it for your own advantage.

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