By Mark S. Technical Analysis Product Analyst and Guest Blogger
It’s hard to believe there was a time in my life when I waited to get charts in the mail and then updated them by hand to help me make decisions on what stocks to trade. Like many others back then, my analysis was pretty limited, and the concepts that showed promise on paper seldom played out in real-time.
Fast forward to today and I am amazed at how far we have come. Within seconds you can enter a stock symbol in Scottrader® Streaming Quotes, choose your chart of choice and start analyzing that stock’s price history using multiple timeframes. The online tools of today allow you to do more, but one thing that hasn’t changed is the patience it takes to interpret and understand the chart data.
What Trading Charts Tell You
In reality, a price chart is nothing more than the correlation between a stock’s price and past events that have trigged either a rally or a sell-off in the market. Where the value of charts really comes into play is in showing you price gaps, patterns, trends, support levels and potentials for breakouts or reversals - all of which have meaning and can potentially tell you where the opportunity resides when placing your next trade. Some of my best trades have been made by analyzing and watching a price pattern develop. Those types of set-ups within a chart don’t come along every day, but when they do that is when using charts gets exciting.
Training your eyes to spot such movements within a chart takes practice. Reusing the same layouts you create within your trading tool, and spending time analyzing price patterns with different indicators or moving averages can help you interpret and understand what is happening with a particular index or stock price. Another great resource to refer to is the “Help & How To” section in the Knowledge Center. Not only does it have easy-to-follow images, it also provides the basics on how to navigate charts within the Scottrade® client website, Scottrader® Streaming Quotes and ScottradeELITE®.
What Trading Charts Don’t Tell You
The important thing to remember when using charts for technical analysis is that patterns are not always what they seem, nor are they predictable. Even after years of trading and using charts I still find myself surprised by certain outcomes and how quickly a familiar price pattern can play out differently than I anticipated. I wish charts told me everything about the trading activity’s history but they don’t. A perfect example of this is the candlestick chart. It can show you the highs and lows, the open and close, but not the volatility or selling pressure that might have occurred within that time period. Keep that in mind when you come across a pattern that didn’t play out like you anticipated.
What patterns do you look for when using charts?
Also of Interest:
- Technical Patterns: Jump the Gun or Wait for Confirmation?
- Use Support and Resistance to Enhance Your Trading
Mark S. started at Scottrade in 2012 and is responsible for the charting and technical analysis of Scottrade’s trading tools.
The analytical tools described in this article are for information purposes only and their use does not guarantee a profit. None of the information provided should be considered a recommendation or solicitation to invest in, or liquidate, a particular security or type of security. Investors should fully research any tool and/or security before making an investment decision.