There are lots of technical analysis charts and tools out there, but do you know which one to use? How do you know when to buy and when to sell? Here’s a look at some of the most common tools and what they can do for you.
The price action chart – A price action chart (also known as candlestick patterns) is a chart that uses small, constantly changing lines to show price movement. The lines form the shape of a candle, and the width of each line represents how much the price has moved in the past. Price is represented by the vertical lines. This chart is useful because it’s easy to analyze patterns like a marketwide trend or small move up and down.
A candlestick chart can be difficult to interpret if you’re not familiar with technical analysis charts, so this tool is often used with other indicators to help you understand its purpose. For example, if you are trying to predict the direction of a price movement, and you have an indicator like the MACD and an “inverted” candlestick pattern, you will be able to quickly tell whether the movement is bullish or bearish. That way, you’ll be able to make a more informed decision and get a better picture of where things are going.
The major benefit of this type of chart is that the lines are easy to interpret and create a visual representation of a trading trend. In the case of a bearish candlestick, for example, the longer of the two lines is vertically aligned, indicating a drop in price. If you want to know how long the price will stay down, then this is a good indicator.
Moving averages – Another important technical analysis chart is the moving average price chart. The moving average is just like the moving candlestick chart, except it also uses other lines (rather than just two lines). The concept behind this is that prices tend to repeat themselves over time (unless they move up and down repeatedly) so that the moving average can easily reveal information about the next move. To show the beauty of the moving average, it’s sometimes done in the form of a spiral; therefore, the name “moving average” itself is a great indicator of the beauty of this type of chart.
If you want to invest in the long term, the move averages are a great tool to help you keep your mind on the ball. You can use this chart to help you see if the next trend is likely to continue into the future. As long as you take the time to learn how to interpret it, you’ll be able to use this chart intelligently.
RSI – Another chart that is often used to give you an idea of how the price action charts work is the RSI. With RSI, you are looking at the average strength index. The strength index shows how a price will move if all the indicators are moving up or down.
These three charts all share one thing in common: they show you how to price moves if there is a bullish candlestick pattern. As long as you know which kind of candlestick pattern to watch for, you can be sure to always make the right decisions when it comes to buying and selling.