For investing in stock markets and online stock trading, luck and timing are not enough. There are techniques, tools, and advanced charts employed by traders to gain insights into stock price movements, volume, etc. These tools help you to take positions as per the technical indications.
6 Keys to Profitable Trading
Stock price charts are plotted on a graph basis the stock price movements over a period of time. You can identify and analyse these patterns, helping augment your trade from charts. Let us look at a few technical charts and patterns to assist your trade from charts and data and not rely on blind stock tips:
1. Reversal Patterns
These patterns indicate the reversal of a particular stock price trend.
- Head & Shoulder Pattern: This pattern is formed with three peaks appearing in charts, the middle peak slightly higher than the other two. The troughs in between have low volumes, and this pattern indicates a falling trend in future, showing a revival in the stock price trend.
- Double Top Pattern: A double top pattern is formed when, after an upward trend, two peaks are formed at similar prices. Similarly, a double bottom pattern after a falling graph shows a reverse movement in future.
2. Continuation Patterns
As the name suggests, this trend shows a continuation of the trend as per the previous chart pattern.
3. Triangle Pattern
This pattern shows up when a triangle emerges from stock price patterns on the graph. The difference between crest & trough prices diminishes; it indicates a continuing pattern. The triangle pattern can be ascending, descending, or symmetrical, indicating a similar trend going forward.
4. Rectangular Pattern
This pattern shows up on charts when stock prices are range-bound; the high and low on the graph are at the same values. The rectangle pattern demonstrates the same trend to continue on charts.
5. Flags & Pennants
Flags indicate short-term patterns, and they are formed after a sharp upward or downward movement. A flag formation can indicate a reversal of the previous trend or strengthening of the current trend on charts. The top & bottom lines in flags are parallel.
In Pennants, the lines formed at the top and bottom of stock prices usually converge at a point forming a triangle. Pennants indicate a trend reversal or continuation pattern. Usually, pennants are formed after a significant price movement.
Wedges can indicate a trend reversal as well as continuing patterns. Wedges appear when two continuing pattern lines meet to form an upward or downward pointing wedge. An upward-pointing wedge appears when a stock price has been moving up over a period of time. A downward wedge forms when the price of the stock has been moving down over time.
In earlier days, charts were prepared by analysts, brokerage houses, and experts. With the advent of technology, there is sophisticated software available for trading.
The above-mentioned technical charts and patterns help you take quick trading decisions with the help of built-in charts and technical analysis tools. You can master these tools over time with observation and studying market trends in the past.