Category:Charts

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“Every shadow,
no matter how deep,
is threatened by morning light.”


Whatever chart a trader uses, if in his heart there is fear, the neutral vision will be compromised. The hope of a raise will overcome movement vision. Chart analysis will be substituted by hope.
To visualize and summarize the ongoing trend it is necessary to use some tools that let us to do it. Price sequences are speaking to us in their own languages and a stock, sometimes, is screaming "uptrend", sometimes it just whispers and, sometimes it just has mixed voices without taking a decision on where to go. In other words a market has its own language made by only three words and many shades.

Those three words are:

This is true in general, but there are many ways of "writing" that might look complicated at first but then, once we understood the right way to read them, they are very easy.

The primary aim of the technical analyst is to understand if a stock price is rising, falling or going sideways. To do so he uses the chart, the first instrument for the analyst. Every technical study is based on a chart, that is the representation of price movements. Time is displayed on the x-axis time, while on the y-axis there are the price levels.

The technical analyst can use several kind of tools to visualize prices, the most common are linear chart, bar chart and candlestick. There are other price representations, less used but rather interesting, as point & figure, equivolume, candlevolume, kagi, renko and three line break.

Once the right representation is chosen it is possible to customize the scale, which can be linear or semi-logarithmic. The linear scale is mostly used but the semi-logarithmic is more suited for long periods (more than 2 years) or for stocks with huge price excursions.

It is even possible to visualize several timeframes, for example a chart might be an intraday chart, daily, weekly, monthly, 3 months, or yearly. Every timeframe has its own use, its advantages and its limits.

A technical analyst must be very careful and must be objective in his analysis, otherwise he will only try to look for a timeframe that will confirm his opinion, ignoring all the other signs.

Notes:

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