Technical Analysis is the forecasting of
future price movements based on an examination of past price movements. Like
weather forecasting, technical analysis does not result in absolute predictions
about the future. Instead, technical analysis can help investors anticipate
what is "likely" to happen to prices over time. Technical analysis
uses a wide variety of charts that show price over time.
Technical analysis is applicable to stocks, indices,
commodities, futures or any tradable instrument where the price is influenced
by the forces of supply and demand. Price refers to any combination of the
open, high, low, or close for a given security over a specific time frame. The
time frame can be based on intraday (1-minute, 5-minutes, 10-minutes,
15-minutes, 30-minutes or hourly), daily, weekly or monthly price data and last
a few hours or many years.
Types of charts:
1.
Line Chart:
This is a very basic chart created by
connecting a series of closing prices of a particular security with a
line.
Line Chart of Closing
Prices
2.
Candle Stick
This
chart is created by displaying the Open ,High, Low,
and Close (O-H-L-C) for a security each day over a certain
time frame.
Candlestick Chart
The following
information is derived from these lines:
·
The middle portion (red arrows) is called the body and represents the opening and closing prices
that day
·
If the body is in black or red, the stock closed lower than its
open
- If the body is white or green,
it closed higher than its open
- The lines above and below the
body are called shadows (upper
and lower) and represent the session’s high and low prices (blue arrows)
- Note: A weekly candlestick is
based on Sunday’s open, the weekly high-low range and Thursday’s close
- The candlestick to your left
(white) closed higher than the open
- The candlestick to your right
(black) closed lower than the open.
So, white or green is bullish and black
or red is bearish
3.
Bar Chart
Like
the candlestick chart, this price chart consists of session high and lows as
well as the opening
and closing prices. It is also
referred to as the O-H-L-C bar.
Bar or O-H-L-C Bar
To establish the
relationship between the opening and closing prices on the Bar Chart, we look
at the horizontal lines to the right and left of the vertical.
Source: The Blue
Collar investor
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