The information stock charts contain is extremely valuable and tells us important information on how a stock is moving. There are a number of different types of stock charts, but the candlestick chart is considered the more superior when it comes to technical analysis of a stock. By using stock charts, technical analysts are able to identify patterns and trends of a particular stock. They look for patterns such as the head and shoulders or double top reversal patterns, to name a few. They also look for other indicators such as lines of support and resistance, and many other more obscure indicators.
Stock picking is considered an art by many, and for this reason, those who are trading stocks will put a lot of time and effort into chart analysis. There are various schools of technical analysis like candlestick charting, Dow Theory or Elliot wave theory. Some analysts may combine various techniques while others stick with one. Finding a good stock pick on the stock market will require you to use one of the methods described before. Technical analysts will tell you that prices move in trends. This may be up, down, sideways, or as a combination.
The candlestick charts provide a very clear view of how a stock has been trading, and through the different visual representations and combinations of candlestick patterns, it is possible to see the trends. For example, one candlestick pattern called a doji, when represented alone, is neutral. However, when it is preceded by other candlestick patterns, it provides important information. If after an advance in a stock’s price a Doji appears on the stock charts, it indicates buying pressure is starting to weaken.
Again, if a stock price has been declining and a Doji appears, it would mean that selling pressure is starting to weaken. This could indicate that a reversal is near, but other patterns would still be required to affirm this action. The direction of a trend can be found by using trend lines or moving averages. When you receive a stock tip from your broker, it may be that he has identified a point of reversal and he advises you to take a position in the stock. To find out more about using stock charts, search for the many resources available online. You can also find a stock market video that details how to use candlestick patterns.