Chart analysis (also called technical analysis) is the study of market action,using price charts,to forecast
future price direction.The cornerstone of the technical philosophy is the belief that all of the factors that
influence market price—fundamental information,political events,natural disasters,and psychological factors—
are quickly discounted in market activity.In other words,the impact of these external factors will quickly show up in
some form of price movement,either up or down.Chartanalysis,therefore,is simply a short-cut form of funda-
mental analysis.Consider the following:A rising price reflects bullish fundamentals,where demand exceeds supply;falling prices wouldmean that supply exceeds demand,identifying a bearish fun damental situation.These shifts in the fundamental equationcause price changes,which are readily apparent on a price chart.The chartist is quickly able to profit from these price changes without necessarily knowing the specific reasons causing them.The chartist simply reasons that rising prices areindicative of a bullish fundamental situation and that falling prices reflect bearish fundamentals.
Another advantage of chart analysis is that the market priceitself is usually a leading indicator of the known fundamentals.Chart action,therefore,can alert a fundamental analyst to thefact that something important is happening beneath the sur-face and encourage closer market analysis.Charts Reveal Price TrendsMarkets move in trends.The major value of price charts is that they reveal the existence of market trends and greatlyfacilitate the study of those trends.Most of the techniques usedby chartists are for the purpose of identifying significanttrends,to help determine the probable extent of those trends,and to identify as early as possible when they are changing direction
A candlestick chart of Intel covering two months. The narrow wick is the day’s range.
The fatter portion is the area between the open and close. Open candles are positive;
darker ones are negative.
Types of Charts Available .The most popular type of chart used by technical analysts is the daily bar chart.Each bar represents one day of trading.Japanese candlestick charts have become popular in recent years. Candlestick charts are used in the same way as bar charts,but present a more visual representation of the day’s trading.
Line charts can also be employed .The line chart simply connects each successive day’s closing prices and is the simplest form of charting.
Any Time Dimension All of the above chart types can be employed for any time dimension.The daily chart,which is the most popular time period,is used to study price trends for the past year.
A line chart of Intel for an entire year. A single line connecting successive closing prices is the simplest form of charting.
longer range trend analysis going back five or ten years,weekly and monthly charts can be employed.For short-term (or day-trading) purposes,intraday charts are most useful.Intradaycharts can be plotted for periods as short as 1-minute,5-minute or 15-minute time periods.
Courtesy Copyright charting made easy .This content copyrights protected Written by John J.Murphy.
future price direction.The cornerstone of the technical philosophy is the belief that all of the factors that
influence market price—fundamental information,political events,natural disasters,and psychological factors—
are quickly discounted in market activity.In other words,the impact of these external factors will quickly show up in
some form of price movement,either up or down.Chartanalysis,therefore,is simply a short-cut form of funda-
mental analysis.Consider the following:A rising price reflects bullish fundamentals,where demand exceeds supply;falling prices wouldmean that supply exceeds demand,identifying a bearish fun damental situation.These shifts in the fundamental equationcause price changes,which are readily apparent on a price chart.The chartist is quickly able to profit from these price changes without necessarily knowing the specific reasons causing them.The chartist simply reasons that rising prices areindicative of a bullish fundamental situation and that falling prices reflect bearish fundamentals.
Another advantage of chart analysis is that the market priceitself is usually a leading indicator of the known fundamentals.Chart action,therefore,can alert a fundamental analyst to thefact that something important is happening beneath the sur-face and encourage closer market analysis.Charts Reveal Price TrendsMarkets move in trends.The major value of price charts is that they reveal the existence of market trends and greatlyfacilitate the study of those trends.Most of the techniques usedby chartists are for the purpose of identifying significanttrends,to help determine the probable extent of those trends,and to identify as early as possible when they are changing direction
A candlestick chart of Intel covering two months. The narrow wick is the day’s range.
The fatter portion is the area between the open and close. Open candles are positive;
darker ones are negative.
Line charts can also be employed .The line chart simply connects each successive day’s closing prices and is the simplest form of charting.
Any Time Dimension All of the above chart types can be employed for any time dimension.The daily chart,which is the most popular time period,is used to study price trends for the past year.
A line chart of Intel for an entire year. A single line connecting successive closing prices is the simplest form of charting.
Courtesy Copyright charting made easy .This content copyrights protected Written by John J.Murphy.