How Is Technical Analysis Done In Stocks

To understand technical analysis, first of all we need to understand the chart. There are four types of charts- line chart, bar chart, candlestick chart and point and figure chart. Bar chart is the most popular among these and most of the chartists use it.

How is a bar chart prepared?

A bar chart has many vertical lines, which are called ‘bars’. In these, there are two very small horizontal lines on both sides of each line. There are four information in one bar. The upper end of the bar shows the maximum price of the stock on a particular day, while the lower end shows the minimum price of the stock on the same day. The small horizontal line on the left side of the bar shows the opening price of the stock and the small horizontal line on the right side shows the closing price of the stock.

How is a bar chart prepared?

Days are placed on the X (3) axis and prices on the Y (4) axis and a bar is drawn for each day and then many bars together prepare a chart. In this chart, the declining days (i.e. when the left horizontal line is above and the right horizontal line is below) are shown in red or black and the rising days (i.e. the left horizontal line is below the right horizontal line) are shown in green or white.

What is the importance of volume in technical analysis?

Volume means the number of shares traded. Technical analysis is actually a science of reading the psychology of the entire market. So it is natural that the correct conclusion of this psychology can be drawn only when more and more people are participating; because in low volume shares, the control of prices is often in the hands of a few operators.

What is a trend line?

The line obtained by joining the highest and lowest prices of a share every day in a bar chart with a straight line is called a trend line. Chartists draw a line from the highest price to draw the trend line of a falling share, whereas a line is drawn from the lowest price to draw the trend line of a rising share. For more accurate results, instead of the highest or lowest price of a single day, the line is drawn from the area of concentration of the highest or lowest prices of several days.

Trend line is the best friend of traders, which is also called ‘Trend is the Best Friend’ in English. Breaking of the trend means that the trend of the stock is about to change, i.e. if the stock price is falling and suddenly the stock prices start coming downwards by cutting the trend line drawn from above, then it should be understood that the uptrend is about to start. On the contrary, if the trend line drawn from the lower price of a rising stock or index starts going above the prices, then the bullish trades should be closed.

What is Stopless?

Stopless is that price of a stock or index, after reaching which the trades are closed, like in any chart of rising prices, the place where the price cuts the trend line and goes downwards, that is the stopless. Similarly, in bearish trades, wherever you cut the trend line and come up, that is the stopless of those trades. When the stopless is raised or lowered with the price it is called ‘tracking stopless’.

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