Understanding Chart and Chart Patterns
Stock charts are very essential for technical analysts; it is the basis of technical analysis in the first place. The thing that is making it golden is that it is showing price movements in the last several days, months, quarter, years, and many more. Furthermore, because technical analysis is being based on 3 assumptions called price moving in the trends, price discounting everything, and history repeating itself, data reflected on it are very useful in future price movements analysis.
From here on, the traders are able to make strong decisions on trading in the process. As a matter of fact, there are many trading strategies and signals that are borne from chart analysis.
Benefits of chart patterns and Technical Analysis
Stock charts are also providing some other valuable information in just a short span of time. It is creating stronger and better trading decisions. Stock charts are not just showing stock price, trends or movements, but the volume as well. The amount of market participants in the market are being referred to as volume. For instance, if the stock price dropped and the volume decreased this is a no-purchase or sell signal.
Apparently, everyone is already getting out of that stock. This must be used together with some other indicators to be able to for your make much better decisions. How well the shareholders have done if you would want to know the company’s profitability? You can check its 5-year chart to see it for yourself.
When you have the appropriate training, you will be able to determine whether the value of the company has lagged or grown in five years. The information that you will get can help you in deciding. Charts are offering priceless data with regards to the history of a stock.
Another benefit of the chart patterns and analysis is the volatility of the shares. If you will be comparing a stock with a down and jagged up movement, a stock with a smoother movement will always be better, thus, no trading the former would be the best thing to do.
At the beginning, Reading charts may overwhelm you!
It is only a matter of time before you will be able to see the fun in it. You cannot say that you do not need charts and chart patterns. It is giving you trading signals that you cannot miss. Nevertheless, because they are not definite in the market, you must not rely on the chart patterns alone because it is only providing recommendations, hints, and signals.
The market is trying to tell you what would happen next. Remember that the price movement will not always reflect what the chart patterns recommended in the past. However, you must not be discouraged since you are able to use your knowledge regarding the chart patterns along with the volume and some other indicators that will help in strengthening your decision.
Unless you want to become a fundamental analyst, you will not know how to survive trading without having to use charts. It is true that at first, everything may overwhelm you but in the later part, it is all worth it.