Analyze Trading Charts

At the heart of any trading analysis is the trading chart. It is where traders find their essential price and trend information, offering valuable insights for identifying patterns, determining support and resistance levels and recognizing market reversals.

Analyze Trading Charts employ many methods of chart analysis, each with its strengths and weaknesses, but the most important aspects to remember are that charts contain two vital pieces of data: price and volume. Anything else is pure speculation.

The first step to reading a trading chart is to identify the trend. For example, if the chart shows a series of higher highs and lower lows, this indicates an uptrend. The opposite is true for a downtrend, with higher lows and lower highs.

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Next, consider the overall structure of the chart. This includes the price axis (vertical) and time axis (horizontal). A line chart displays a single line that connects closing prices over a period. A variation on this, known as a mountain chart, provides more detail by overlaying a shaded area beneath the line, making trends easier to spot.

Another common type of trading chart is the candlestick chart, which combines elements of both line and bar charts. It depicts the open, high, low and close prices of a stock over a period with distinctive “bodies” that are green or red, depending on whether a trade is bullish or bearish. This type of chart also allows for the addition of indicators, such as the average true range and reversal patterns, which can help traders identify potential entry and exit points.