Professional traders often use trading tools, strategies, and technical analysis to gain more and more profits from financial instruments. Similarly, trading charts and patterns are the core pillars of technical analysis that are frequently used in the trading market to determine market behavior.
Some of the trading charts & patterns such as candlesticks, figure charts, line & point, RSI (Relative Strength Index), continuation, reversal, and bilateral patterns give a signal or direction; to whether the price movements of the trading instruments will go up and down. In addition to this, it helps traders to make wise decisions. But we are focusing on how to read trading charts & patterns as the trading requirement of everyone may vary from one to another. It is recommended that you can choose any of the trading charts or patterns as per your trading requirements.
In this post, we will cover how to read these charts by providing in-depth knowledge and a better understanding of the various patterns that are used in the stock market for technical analysis.
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What are Chart Patterns?
The concept of chart patterns is based on the assumption that helps traders analyze or determine the trading signals, outcomes, or signs of future price movements. The chart patterns are the only way to determine the variations in uptrend and downtrend in the stock market.
How To Read Technical Analysis of Chart Patterns?
Head & Shoulder
It is one of the types of reversal chart patterns that convey information about the movement of trading instruments.
Top: It is formed at the highest point of an upward position and guides the direction that the upward is about to end.
Bottom: It is formed at the lowest point and familiar with an inverse signal.
Daily Bar Charts
Daily Charts are the most common charts that have been used by technical analysts. It provides the most useful information about price movements in trading.
The opening price refers to the initial price at which trading instruments first trade when the trading market is opened for the day.
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The closing price is the last price at which the trading market closes for the day.
From the above-mentioned paragraph, we can clearly indicate that the vertical line represents the range. On the other axis, it indicated that the horizontal line positioned on the left side represents the opening price, and the horizontal lines on the right represent the closing price.
It is one of the types of trading charts & patterns that allows traders to maintain a record of the closing price of a single day. You can see in the above paragraph it is plotted on a daily routine basis and forms a straight line that frequently fluctuates so the price goes up and down. The vertical axis represents the price and the horizontal axis represents the time.
As we can see in the graph, the candlestick plots the data in a different manner than other trading chart patterns. You can see in the aforementioned graph that the CandleStick chart is categorized into two parts – both of them represented with a line. The thin line in (red & green) color determines the price range from high to low. However, the real body helps calculate the difference between the closing and the opening price.
The best thing about trading charts and patterns is that they automatically revive or move again and again. These repetitions help technical analysts to make wise decisions in choosing trading charts. It can be used for both long terms as well as short-term forecasts.
However, many trading chart patterns look similar in nature, but it’s not true as you find some differences in each and every pattern. False assumptions and breakouts are most common in identifying trading patterns, but on the flip side, it also helps in determining the future movements of the trading instruments.