Sunday, August 5, 2018

How To Read A Chart Like A Professional Trader?


Technically, the most fundamental knowledge every beginning trader should need to learn.
A chart is like a road map every traveler needs to carry along with them in order to reach their destination.


What is a Chart?

A chart shows the movement of price or price action over a period of time. Just like the roadmap example above, traders need a technical chart in order to have higher probability forecast of the market's direction. The chart is the number one tool in Technical Analysis. Without a chart, a technician or a technical trader has a lower probability of winning a trade. Let's take a look at the 3 types of charts.


What are the 3 types of Charts?

Line Chart


Click to enlarge the photo


A line chart shows only the closing prices of the price action forming a linear graph. This type of chart is used only as a supporting chart as it does not show the opening, high and low of the price action.  Traders use this chart to get a clearer view of the current trend of the market, e.g. uptrend, downtrend or consolidation. I will discuss more about this topic in my upcoming lessons.  So stay tuned!

Bar Chart


Click to enlarge the photo


A bar chart is more complex than a line chart, it shows the opening, high, low and closing prices of the price action. Also known as OHLC chart, stands for O(Open), H(High), L(Low) and C(Close). This type of chart is the most widely used until the introduction of Japanese Candlesticks more than 25 years ago.
Click to enlarge the photo

How to read a bar:
  1. The horizontal line on the left side of the bar is called the Opening of the price.
  2. The horizontal line on the ride side of the bar is called the Closing of the price.
  3. The vertical extension above the bar is called High of the price.
  4. The vertical extension below the bar is called Low of the price.
  5. If the position of the opening price is lower than the closing price, it is a bullish bar.
  6. If the position of the opening price is higher than the closing price, it is a bearish bar.

Japanese Candlestick Chart


Click to enlarge the photo

Invented by a Japanese rice trader Munehisa Homma, the Japanese Candlesticks has been used by the Japanese since the 1700's. It was only recognized by western traders until the publication of Steve Nison's book titled Japanese Candlestick Charting Techniques in 1991. A Candlestick Chart is similar to the bar chart but it is more detailed and much easier to read.


Click to enlarge the photo

How to read a candlestick:
  1. The candlestick has a body which composes the Opening and Closing of the price.
  2. It has a wick or tail which composes of the High and Low of the price.
  3. In a Bullish Candlestick, the lowest part of the body is the Opening price while the highest part of the body is the Closing price. Subsequently, In a Bearish Candlestick, the lowest part of the body is the Closing price while the highest part of the body is the Opening price.
  4. The tip of the wick/tail below the body is the Low while the tip of the wick/tail above the body is the High.
  5. Usually, a Bullish Candlestick is colored white, blue or green while the Bearish Candlestick is colored Black or Red. ( if you are using the mt4 trading platform, you will be able to customize the colors of the Chart).

Most traders nowadays are using the Candlestick Chart as their primary tool to analyze the market. Not only because it is easy to read but also using candlesticks alone can forecast a high probability reversal pattern which can lead to a winning trade. I personally preferred Candlesticks chart to use. I will also be discussing more of Candlesticks pattern in my upcoming posts; This is a powerful tool that every beginning trader should need to learn.


If you are a beginning trader or new to this blog you may check out my other tutorials here.




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