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Stock market chart analysis


Stock market chart analysis

stock market chart analysis:- we will provide complete details of  stock market chart analysis in this article.

stock market chart analysis:- 5 Great Stock Chart Patterns Every Investor Should Know

Over a series of articles, I have reviewed the basics of technical analysis. With an understanding of trendlines, channels, support, resistance, triangles, and reversals, you have a basic foundation that can be applied to unique technical patterns.

stock market chart analysis

The following five stock chart patterns are unique, yet powerful. Understanding their uses will increase your likelihood of identifying market-changing events. These patterns are:

1. Gaps – Gaps occur when a price opens much higher (gap higher) or lower (gap lower) than the previous day’s close. Once a gap occurs, the new price represents an important price level. Gaps higher create support that should allow the stock to move higher and gaps lower create resistance that should pressure the stock lower. Until the gap is violated, we should assume the trend will continue in the gap’s direction. Amazon.com (AMZN) shows a gap higher on heavy volume (black arrow) that now acts as support (black line). As the stock has traded higher from that moment, it would take a close below $57.50 to indicate the bullish move is over.
stock market chart analysis

2. Head and shoulders – This is a powerful pattern that marks a top and also provides a downside price target. When a head and shoulder forms, we see a rise within an existing uptrend to a new high that creates the left shoulder. Prices then move lower, but rebound to another new high to form the head. From that point, we see a decline that does not violate the initial sell-off from the left shoulder. Prices rally again, but the failure to top the recent high forms the right shoulder. By connecting the lows that occurred after the left shoulder and head were formed, we identify the neckline. Once the neckline is violated, the pattern is complete and prices will move lower.

To see this pattern in action, consider the Volatility index (VIX). In October, a strong uptrend took the VIX near 80 before a sell-off. This formed the left shoulder. A rally above 80 and subsequent decline created the head. When VIX then topped out near 70, the right shoulder was formed. The breaking of the neckline (blue line) pointed to lower prices. To estimate the downside target, we use the difference between the head and the neckline. This gives us a 35 target (blue box).

stock market chart analysis

3. Triple bottom/top – This is a variation of a head and shoulders pattern. The main difference is that whereas the head and shoulders offers three points at different prices, the triple top/bottom offers them at the same price. Cliff Natural Resources (CLF) shows three highs at the same level (blue circles). This indicates a potential triple top that would drive prices toward $20.

stock market chart analysis

4. Double bottom/top – This is more frequent as it requires only two data points whereas the triple top and head and shoulders require three points. When we see two prices at the same level, it indicates stocks have reached either a top or bottom. As with most technical patterns, reversals on heavy volume reinforce the movement. Returning to KO, the black circle indicates a spike in volume that accompanied the reversal. This should have warned all those owning the shares that the massive reversal was occurring.

stock market chart analysis

5. Saucers – Saucers show a gradual turn from downtrend to sideways to uptrend. They are long-lasting base-building patterns that indicate trends are changing. Copper offers an example whereby a long downtrend eventually bottomed, moved sideways, and then pushed higher. This lets us know that the recent lows near $130 should serve as a long-term base years into the future.

stock market chart analysis

While one list cannot capture every possible chart pattern, these five will allow you to develop a base of knowledge that leads to increased trading success.

stock market chart analysis:-Understanding Technical Analysis, Reading Stock Charts

In its purest form, technical analysis is the study of charts with the goal of determining future price actions. While this method may appear straightforward, the obvious question is what types of charts are available? For studying the markets through reading stock charts, these four main chart types are used:

1. Daily bar chart– This is the most widely used chart. It is constructed to show four pieces of information: opening price, closing price, high of the day, and low of the day. Looking at each day’s history, a vertical line shows the day’s range with a horizontal line pointing left to mark the opening price and a horizontal line pointing right to mark the closing price.

gs-daily-bar-graph

2. Candlestick chart – This chart presents the same data as a bar chart, but in a slightly different format. The chart has two main parts. The first is the thin line, known as the “shadow,” which shows the price range from high to low. The wider area, known as the “real body,” measures the difference between the opening price and the closing price. If the close is higher than the open, the real body is white.

stock market chart analysis

3. Line chart – A line chart measures only the closing price and connects each day’s close into a line. Many technicians believe closing price is the only point that matters. For them, a line chart may be the most appropriate study.

stock market chart analysis

4. Point and figure –A point and figure chart is concerned only with price, not time or volume. The chart uses an X to mark increases in price and an O to mark lower prices. With this approach it is easier to spot trends and reversals. However, since time is not used as an input, P&Fs offer little guidance on how long it will take for profit objectives to be met.

gs-point-and-figure

Each chart type for performing technical analysis has its benefits. Personally, I believe closing price trumps all else, but intraday action matters as well. To obtain the data I need, I use daily bar charts for trend analysis and point and figure for long-term profit objectives. By exploring the options each approach provides, investors can determine which type best meets their needs for reading stock charts.

stock market chart analysis

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stock market chart analysis

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