Technical Analysis Part - 3

 

                


                    Technical Analysis Part -3


If you read my previous chapter related to Technical Analysis then this chapter is more important for all of you & this is last chapter of Technical Analysis series, if you missed that chapter here is the link : -

  

Stock Market Technical Analysis Part -1

Share Market Technical Analysis Part -2


Normally used charts like column chart, pie chart, etc. do not work in TA (Technical Analysis). Out of this, only two type of chart is useful in technical analysis and these are line chart & candle stick chart. This is because a commonly used chart shows only one data point, whereas a TA requires at least 4 data points (as I told you in my last chapter which is Open, High, Low & Close).


Mostly there are three type of chart using in TA. in which Japanese candlestick chart is more reliable. So we will get the most information on this candlestick charts, but before that let's understand why we not use line chart & bar chart.


(1). Japanese candlestick ( 2 ). Line chart ( 3 ). Bar chart


(1) Line chart is the easiest chart but only one data point shows in this chart and on that this chart is prepared. In TA, a line chart is made for only one thing, that is the closing price. For each day's closing price, a point is drawn on a chart and then a line chart is made by connecting all those points with a line.


This is the biggest feature of the line chart, but it is also its biggest weakness. It is very simple. Any trader can spot a trend by looking at it. Line chart can only indicate a trend and nothing else. The weakness is that it is created only on the basis of closing price and does not take other data points like OPEN , HIGH , CLOSE , LOW . That's why traders rarely use line charts.


Also Read This : Share Market Full Knowledge for Beginners


( 2 ). Bar charts contain more data than lines. Like OPEN, HIGH, CLOSE, LOW all four can be shown in this.


( a ). Central Line - The top part of the bar represents the highest price i.e. High, while the bottom part of the bar shows the lowest price i.e. Low.

( b ). Left Mark - This shows the price at the time of opening.

( c ). Right Mark - This shows the close i.e. CLOSE price.


We will learn only candle stick here because Technical Analysis  could not be completed without candle stick, so without wasting time let's start understanding candle stick directly.


First of all it would be good to know the history of Japanese candlestick as the name suggests, the candlestick originated in Japan. It was first used in Japan in the 18th century by a rice merchant. By the way, it is being used for analyzing prices in Japan for a long time.


Read This : Why To Invest In Stock Market In India



It is believed that a man named Steve Nishan found it in 1980 and then told the world how to use it and how it works. That's why the name of its candle is also in Japanese language.


How the candlestick was formed :-


Open and close prices in candlesticks are shown as a square rectangle in the candlestick chart, there are both bearish candles (which we have shown in red color) and bullish candles (which we have shown with green color).


Bullish candles are shown as blue, green or white and bearish candles as red or black. By the way, you can change these colors at any time and choose the color of your choice. TA's software lets you change colors. In this module we have used green colored candles for Bullish (Bullish) and Red colored for Bearish (Bearish).


First let's look at the Bullish candle. Like the bar chart, the candle shape also has three parts.


1. Central Body – The main part which is rectangular and connects the open and close prices.

2. Upper Shadow – Connects the high to the CLOSE price.

3. Lower Shadow – Connects the low to the open price.


Now understand this with an example. Let's say the prices are:

Open = 62, High = 70, Low = 58, Close = 67




Similarly, the Bearish candle is also formed in three parts.


Read This : How To Make A Profit In The Stock Market


1. Central Body – The rectangular main body that connects the open and close prices. However, the opening is at the top and the closing is at the bottom of the rectangle.

2. Upper Shadow – Connects HIGH point to OPEN.

3. Bottom Shadow – This connects the low point to the closing price.


Now understand this with an example. Suppose the prices are below

Open = 456 , High = 470 , Low = 420 , Close = 435




Reading and learning about candlesticks will make it easier for you to understand patterns. If you want to plot a candle stick on a time series, it will look like in the picture below. The green colored candle is bullish and the red colored candle is bearish.


        


Just look carefully, long candle sticks indicate overbought or sell, while short candlesticks indicate low trading. The price movement in small candles is also very less. Overall, candlesticks are much simpler than bar charts and are easier to understand and to spot trends. With candlestick you can more easily understand the relationship in OCHL (Open Close High and Low).


Time Period :- It is called the time for which you want to view the chart. Its duration can be any monthly, weekly, day & in intraday chart - 30 minutes, 15 minutes and 5 minutes, can also be 60 minutes, it depends on you


              


Statistics or data can also give you useful information and can also give unnecessary information. As a trader you have to find the right information. For example, a long term investor should look at weekly or monthly charts as this will give him an idea of ​​his performance.


Whereas an intraday trader should look at the daily chart or 15 minute chart. To the trader who does a lot of trading in a day, only a 1-minute chart will give information about his work. So you must have understood that you should choose the period of time according to the information of your need.


Now in the next chapter, we will know how many types of candle sticks are there, how they work and how they benefit us.


Thanks for reading If you have any question you can ask in the comment section or you can follow us so that you can get notification of my next post.


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Must Read These Also:-


Stock Market Technical Analysis Part -1

Share Market Technical Analysis Part -2

Share Market Full Knowledge for Beginners

Why To Invest In Stock Market In India


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