Stock charts are very important for technical analysts. In the first place, it is the basis of technical analysis. What makes it golden is that it shows stock price movements in the last couple of days, months, quarter, years and so on. And since technical analysis is based on 3 assumptions, namely: (a) price discounts everything, (b) prices moves in trends, (c) history repeats itself, data reflected on it are useful in analyzing future price movements. From here on, traders can make strong trading decisions in the process. In fact, there were many trading signals and trading strategies borne from chart analysis.
Other Benefits of Chart Analysis
Stock charts also provide other valuable information in just a short span of time. For example:
1. Create better and stronger trading decisions Stock charts not only shows stock price movements (trends) but volume as well. The amount of market participants in the market are referred to as volume. For example, if the stock price is dropping and volume is decreasing, this is a sell or no-buy signal. Apparently, everyone's getting out of that stock already. This should be used in conjunction with other indicators in order for you make better decisions.
2. How well the shareholders have done If you want to know the profitability of the company, you may check it's five-year chart and see it for yourself. When you have the proper training, you could determine whether or not the company's value has grown or lagged in five years. The information you get will help you decide. Charts offer priceless data about the history of a stock.
3. Volatility of the company's shares Check price movements on the chart. If you're going to compare a stock that has a jagged up and down movement, a stock that has a smoother movement is always better; therefore, not trading the former should be the best thing to do.
Chart patterns are fun
Chart reading can overwhelm you if you're a beginner. It's just a matter of time before you see the fun in it. You can never say that you don't need charts and chart patterns. It gives you trading signals that you just can't miss. However, since there are not absolutes in the market, you shouldn't rely on chart patterns alone since it only provides signals, suggestions or hints. The market is trying to tell you what may happen next. Keep in mind that the price movement may not always reflect what the chart patterns previously suggested. But you shouldn't be discouraged because you can use your knowledge on chart patterns in conjunction with volume and other indicators to strengthen your decision.
2 Types of Chart Patterns
Chart patterns are generally classified in 2:
1. Reversal - once the pattern has been completed, there is a possibility that the trend will reverse or go against you.
2. Continuation - as is obvious, it means that the trend is bound to continue.
I'm just giving you a brief overview of chart patterns to give you an idea how it works. The stock market is all about probabilities; the higher your probability, the better your chances of booking profits. Having a concrete knowledge on technical analysis (chart analysis) and chart patterns can really help you secure your place in the trading industry as a successful trader.
What if you skip chart analysis?
Many fundamental analysts don't believe in the use of technical analysis. However, they can't deny how wonderful technical analysis is. In fact, there are staunch believers of fundamental analysis who also use chart analysis to some extent because of the mere fact that it can provide loads of invaluable information in just a short time.
Unless you want to be a fundamental analyst, I don't know how you can survive trading without using charts. It's true that at first, everything can overwhelm you but in the end, it's all worth it.
No comments:
Post a Comment