Technical Analysis Stock Market – Chart Patterns, Trends & Analysis

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Nowadays, technical analysis is used by both technical and fundamental traders in order to determine whether to buy into a market and select low-risk entry prices. The term technical analysis in the stock market refers to the process of analysing market data to predict future price movements of stocks or currency pairs.

Technical analysts use chart patterns and statistical indicators to analyse future market behaviour by using past trading activity. Technical analysis is based on three principles — all the information necessary about the stock is already reflected in the stock price, prices move in trends, and history tends to repeat itself. 

How To Do Technical Analysis?

Technical analysis plays a vital role in the stock market because predicting the volatile nature of the stock market is very difficult. One requires skills to know the buying or selling price level of a particular stock.

One can help the investors by suggesting to them when and where they will invest their money to get a high profit by learning technical analysis. Technical analysts believe that the stock prices move in identifiable trends over the period of time and to find out how the stock prices will move in the future, they evaluate the past price of the stocks. 

Technical Analysis helps in making decisions on when to buy or sell the sells, without knowing the company. One need not know about the management, need not analyse the profit and loss statement and yet you can buy or sell the shares and have profit out of it. 

Features of Technical Analysis:-

  • Screeners – It consists of three screeners: stocks, forex, and cryptocurrencies. It includes a rating, which varies from strong sell to strong buy. These ratings are measured based on the number of technical indicators.
  • Server-side alerts — With this, we can set the price alerts on individual assets and get notified when the current price hits the defined amount. One can set a webhook and can have an external application act on it, but that requires development effort.
  • Scripts — Script allows the creation of custom indicators and plots them in the charts. 

Technical Analysis Triangle Pattern

It is the commonly used continuation chart pattern formed by two trend lines. These patterns are vital as they help in assisting the trader to spot the market reversal. The triangle pattern can be referred to as a horizontal continuation pattern in which buyers and sellers battle back and forth to reach a place where the supply and demand will intersect and form the triangle’s apex. 

The pattern is called “horizontal” as it forms a 90-day holding pattern in which the price of the stock does not reach new highs or lows. Three types of triangle patterns are used to make trading decisions.

Three Types of Triangle Patterns:-

  1. Ascending triangle pattern — It is also known as the Bullish triangle pattern, formed when the security price is likely to climb upward as the pattern completes itself. It is created with two trendlines in which the first trendline is flat along the top of the triangle, acts as a resistance point, and signals the beginning of an uptrend whereas the second one, the bottom line of the triangle which shows price support, is the line formed by the series of higher lows.

2. Descending triangle pattern — It is also referred to as the Bearish triangle pattern. It develops when the security’s price falls but then volleys back the resistance level and rises. This pattern is the mirror image of the ascending triangle pattern. When the descending triangle is formed, the volume is low until the apex’s support and resistance levels intersect. 

3. Symmetrical triangle pattern – It is also viewed as consolidation patterns by the traders and market analysts, which can predict either the continuation of the existing trend or a trend reversal. This pattern consists of two symmetrical trendlines that move towards each other until the apex point of the triangle is formed.

Technical Analysis Trading Strategies

Different types of traders prefer different forms of technical analysis to make decisions like simple trendlines and volume indicators, chart patterns, and technical indicators.

  • Developing a trading system: A trader decides to follow a moving average crossover strategy, where they will track two moving averages, 50-day and 200-day. In this, if the 50-day moving average goes above the 200-day moving average, it indicates an upward price trend.
  • Identifying securities: Different stocks might require different parameter choices, say 15-day and 50-day moving average.
  • Finding the right brokerage: Getting the right trading account that will support the chosen type of security.
  • Tracking and monitoring trades: A basic margin account will be preferable as a low-cost option.
  • Using additional tools: Some traders might prefer mobile alerts to trade on the go while some like automated trading systems for the execution of trades on their behalf.

Types of Charts used in technical analysis

Different charts play a vital role in technical analysis. Above we shared the importance of technical analysis and told you how it can help you to make your trading strategy successful. Analyzing technical charts can help you to make informed decisions during intraday trading. A chart in technical analysis is actually a graphical representation of historical prices, time intervals, and volume. 

To understand its importance, it is important to talk about types of charts in the stock market. Candlestick chart, Renko chart, line chart, and point and figure chart are some of the main charts used by traders to understand the overall markets. To understand more keep scrolling down towards the types of chart patterns which are as follow:

  • Line Charts

This is one of the most basic charts from the list of types of charts in technical analysis. This simply contains a single line that moves from left to right and links the closing prices. In this, only the closing price is presented by a single point. The line chart is used to make reports and presentations. This provides a general and simple view of any asset or trade, from both historical and current perspectives. 

This helps the traders to have a clear picture of any stock to know where the price is moving. Well, this chart doesn’t elaborate on you all but only the past and present closing price. 

  • Bar Chart

A bar chart is one of the basic tools used in technical analysis by traders. It is also referred to as an open-high-low-close (OHLC) chart. This chart indicates the opening, high, low, and closing price of a stock. It contains vertical lines which depict the price range during a particular time frame. 

 

This chart helps the traders to analyse the overall situation of any asset. 

  • Candlestick chart

Another important type of chart used in technical analysis is the candlestick chart. This chart contains a thick body which is known as a candlestick, representing prices. This thick body (candlestick) is attached with two extended lines (from above and below), known as upper shadow and lower shadow. Also learn the types of candlestick charts in technical analysis

  • Renko Chart

It is another important chart from the list of types of charts technical analysis. Renko chart is a form of noise-less charting technique that depicts the usage of volumes, completely disregarding time and price movements. 

 

  • Point and figure charts

This chart is used by almost every average investor as these charts are not popular enough. The point and figure chart are only focused on the significant price moves while removing the ‘noise’. This chart is ideal for the detection of trends and for determining the support and resistance levels. 

 

Conclusion

If you are planning to trade or invest in the stock market, you should learn the right way of technical analysis and should understand how important it is to make the right trading and investment plan. Talking about the technical charts, it is important to note down that each chart has its own utility. You can use these charts according to the strategies/plans and according to your trading type. Keep expanding your knowledge about the stock market by staying connected with us.

Frequently Asked Questions

Also Read: Stock Market Trading Tips

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