You will be able to analyze and trade with any type of chart. We’ll start with the basics of technical analysis and work our way up to the more complicated ideas.
Even individuals with past trading expertise should not skip the next segment. It is a prerequisite for good price analysis and contains a distinct methodology that is rarely addressed in standard technical analysis.
Line charts
Most people get their first impression of the world of financial markets from line charts, which are often shown in newspapers and on TV.
A line chart can depict the price evolution of a stock, currency pair, cryptocurrency, commodity, or any other financial instrument. The information in a line chart is greatly compressed, which is an advantage. A quick look at the line chart shows you everything you need to know to do a basic analysis.
A rising line on a chart implies a rally or bull market (a bull thrusts its horns in the air). If the line chart displays dropping prices, a bear market exists (the bear swipes his paws down).
Typically, the daily closing prices are plotted and connected using a line chart. Every day, one time unit is added to the right side of the scale. This type of graph is also known as a daily chart.
The downside of a line chart is that daily price changes are visible.
(or any selected time period) cannot be recorded because the line chart only displays closing prices. However, we are all aware that the financial markets can experience significant price changes, and ignoring them might be detrimental to precise technical analysis.
Candlestick charts
Candlestick charts are further evolved line charts that serve to compensate for the disadvantage of less information. Candlestick charts have their origin in 17th century Japan. Today, candlestick charts are the main instrument of analysis for traders and most investors since they provide all the needed information at a glance.
The candlestick
As implied by its name, a candlestick chart consists of so-called (price) candlesticks. Different parts of these candlesticks show how the prices of financial products change over time.
Two examples of candlesticks are depicted in figure 5. A candlestick has a solid base and two thin lines that are called candlewicks or candlestick shadows.
The candlesticks are color-coded to indicate the direction of price fluctuations. A white candlestick means the price went up, while a black candlestick means the price went down.
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The length of the shadows indicates how much the price has moved up or down relative to a candlestick over a given time period. If we design our charts so that one candlestick represents one day, we may use the shadows of a candlestick to interpret the daily variations in the financial market.
The body of the candlestick represents the difference between the period’s starting and closing prices.
In Figure 6, the white body of an ascending candlestick shows that the price started at $10 and ended at $20 during the given time period. However, it went up and down between $25 and $5 during that time, as shown by the shadows.
If we align numerous candlesticks as illustrated in Figure 7, we can mimic the progression of line charts by following the candlestick bodies. In addition, the candle shadows illustrate the magnitude of price fluctuations in each instance. So, we can get all of the information we need for a good price analysis in one place.
a glance This is why candlestick charts are the most prevalent form of technical analysis today.
Candlesticks offer more information and are the preferred medium for technical analysts.
The subsequent chapters demonstrate how to evaluate this data to make actual trading decisions. If you know how to look at and understand so-called “candlestick patterns” or “candle formations,” you have a better idea of how people in the financial market act.
Bottom line :
At the conclusion of this book, you will be able to analyze and trade with any type of chart. We’ll start with the basics of technical analysis and work our way up to the more complicated ideas. A line chart can depict the price evolution of a stock, currency pair, cryptocurrency, commodity, or any other financial instrument. The information in a line chart is greatly compressed, which is an advantage. A rising line on a chart implies a rally or bull market (a bull thrusts its horns in the air) If the line chart displays dropping prices, a bear market exists (the bear swipes his paws down).
Candlestick candlestick charts contain a distinct methodology that is rarely addressed in standard technical analysis. The downside of a line chart is that daily price changes are visible.
A candlestick chart is a chart that shows how the prices of financial products change over a given time period. Figure 5 shows an example of such a chart, which has a solid base and two thin lines that are called candlewicks or candlestick shadows. The length of the shadows indicates how much the price has moved up or down relative to a candlewick. The candle shadows illustrate the magnitude of price fluctuations in each instance. Candlestick charts are the most prevalent form of technical analysis today. So, we can get all of the information we need for a good price analysis in one place.
If you follow the path of the candlestick prices, you can reconstruct the line charts.
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