Decoding a Technical Chart

Decoding a Technical Chart

As they say, A picture says a thousand words, this perfectly stands true in the terms of technical analysis, where the whole trading statistics is plotted on a pictorial representation.

A technical chart is the graphical representation of open, high, low and close of a stock on a X and Y axis based stock chart.

X Axis represents the DURATION in minutes/ Days/ weeks/ months etc

Y Axis represents the PRICE of the underlying

Decoding Charts

As you can see in the chart the whole data of closing prices of a stock is now plotted in a graphical presentation which gives a more clear picture of the trend, as compared to viewing the same data in a tabular format.

The charts make it easy and technically possible to do all kinds of analysis and future market predictions based on the past data.

Also Read : Options Strategy: Straddle and Strangle

Decoding Technical Charts

In the chart above one can also see a lower column of Volume, which states the total number of shares traded on that particular day. Volumes help a technical analyst confirm a trend as if a stock has risen with good volumes the rally will stay for a longer time.

Chart time periods

Technical Charts can be drawn with a specific view and timeline to take a more micro or macro trend analysis of stock, the chart time periods can be following :-

  • Daily EOD: Chart where one Candle/ Bar/ Dot represents the trading of a single trading     day, These charts are also known as Daily chart.
  • Intraday: A continuous tick chart which represents the trading of that day Tick by tick, This chart is used by Intraday and short term traders.
  • Weekly: Chart which represents the weekly trading and one bar represent the trading of a week.
  • Monthly: Charts which represent the trading of months, one month is represented by one bar.
  • Quarterly: Chart which represents the trading of a one quarter( 3 months)
  • Yearly: Charts are very rarely used. It represents the year wise trading patterns, where one Bar represents one year or trading.

Also Read : Top 5 Technical Analysts of India and their Trading Secrets

 

So a trader can use both EOD and Weekly data to see whether a trend confirmation has occurred on both the charts or it is still premature to confirm a trend on a stock, so as an analyst it is always important to keep a watch on all the time periods to get a more holistic view on a chart.

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