| How To Read Price Charts Used For Technical Indicators |
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| Written by Leyla Maker |
| Friday, 26 February 2010 23:12 |
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Understanding technical indicators begins with the visual representation of stock prices in a chart. Even though there are generally several charts of different types, the actual ones applied most of the cases generally are the line chart, the bar chart and the candle chart which is the most popular one simply because it provides the most information and facts.
Understanding technical indicators begins with the visual representation of stock prices in a chart. Even though there are generally several charts of different types, the actual ones applied most of the cases generally are the line chart, the bar chart and the candle chart which is the most popular one simply because it provides the most information and facts. Before the arrival of the computer, the line chart was the primary chart used with technical indicators, however its use has almost declined to where it is rarely implemented in the technical analysis. In the past stock price information was documented manually, and the only information that recorded was the end prices which were joined to form the chart. With regard to a bar chart, the highest in addition to the very least prices within a prescribed span of time (minutes, hours, days, weeks, or months) can be linked with a vertical bar. The initial price might be displayed by way of a tick mark at the left side; the fnal price is represented simply by the tick mark at the right side. The bottom and the top of the vertical bar symbolize the cheapest in addition to highest prices involving the span, respectively. The bar chart is utilized mostly in Western technical analysis. The candlestick chart originated in Japan. It was introduced by Steve Nison to the Western World in his book Japanese Candlestick Charting Techniques (Nison, 1991). Candlesticks basically outline price variations that occur during a specific time.the candlestick body display the price change that occurred between the market open and close during the given time span. The candle is shown white if the closing price is higher than the opening price, but shown dark when the closing price is lower than the opening price. Candlestick can be shown in a body or a body with short and long wicks. When it comes to Candlestick charts, the subject is huge and needs a separate study. When examining price movements of 100%, it is recommended to implement logarithmic scales on the vertical price axis of the chart. If you are using a scale of five points on a linear scale, a price change from $15 to $30 comprises three divisions, whereas a price variation from $30 to $60 involves six divisions. This indicates that the distance on the vertical axis from $30 to $60 is twice as large as the one from $15 to $30. On the other side, a price move from $15 to $30 or from $30 to $60 is exactly equal to the same 100% price increase. When the price moves from $15 to $30 or from $100 to $115 is considered the same comparably on a linear scale. Evidently, this really does not offer for a good graphic opinion related exactly to what the price change undoubtly provides. When stock price moves from $15 to $30 , this price movement is measured as 100% price move but when the price moves from $100 to $115 , only 15%. In order to have the same distance on the vertical axis display the same percent increase in the price, you will need to employ the logarithmic scale. So when using the logarithmic scale, you can a price increase of 100% when the price move from $30 to $60 similar to a price increase from $15 to $30. So looking at the chart will give more meaningful visual representation. Any time there are substantial price variations, applying a linear scale can be a drawback. It may be perhaps not achievable to draw a linear pattern line underneath an upward or perhaps downward trend. However implementing a logarithmic trend line more than likely will present you the assistance level you need when looking at charts. Having said that, the majority of individuals will probably utilize linear scaling on daily price charts, which is fine on condition that the price variations within limits. More often, logarithmic scaling is actually applied to longer-term charts, such as weekly or monthly charts, mainly because the price changes are significantly more obvious. The best treatment is to take advantage of logarithmic price with logarithmic trend lines at all time. DISCLAIMER: This article is provided as information only and is not to be taken as financial advice. Looking to find the best information on technical indicators, then visit www.technicalindicators.biz to find the best advice on charts with technical indicators for you. |