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When you buy stocks it is very important to understand charting terms and indicators.

Charting terms and indicators

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Types of Charts

  • OHLC - Open High Low Close charts plot the high and low of the price movement vertically and the open and close horizontally. Used to graph range and outliers.
  • Candlestick chart - Similar to OHLC, but open and close are filled. Often Black or Red candles represent a close lower than the open. While White, Green or Blue candles represent a close higher than the open.
  • Line chart - Connects each closing interval together on a line

Concepts

  • Average true range - averaged daily trading range, adjusted for price gaps
  • Chart pattern - distinctive pattern created by the movement of security prices on a chart
  • Dead cat bounce - the phenomenon whereby a spectacular decline in the price of a stock is immediately followed by a moderate and temporary rise before resuming its downward movement
  • Elliott wave principle and the golden ratio to calculate successive price movements and retracements
  • Momentum - the rate of price change
  • Point and figure charts - charts based on price without time

Overlays

Overlays are generally superimposed over the main price chart.
  • Resistance - an area that brings on increased selling
  • Support - an area that brings on increased buying
  • Breakout - when a price passes through and stays above an area of support or resistance
  • Trend line - a sloping line of support or resistance
  • Channel - a pair of parallel trend lines
  • Moving average - lags behind the price action but filters out short term movements
  • Bollinger bands - a range of price volatility
  • Pivot point - derived by calculating the numerical average of a particular currency's or stock's high, low and closing prices

Price-based indicators

These indicators are generally shown below or above the main price chart.
  • Accumulation/distribution index—based on the close within the day's range
  • Advance decline line — a popular indicator of market breadth
  • Average Directional Index — a widely used indicator of trend strength
  • Commodity Channel Index - identifies cyclical trends
  • MACD - moving average convergence/divergence
  • Parabolic SAR - Wilder's trailing stop based on prices tending to stay within a parabolic curve during a strong trend
  • Relative Strength Index (RSI) - oscillator showing price strength
  • Stochastic oscillator, close position within recent trading range
  • Trix - an oscillator showing the slope of a triple-smoothed exponential moving average, developed in the 1980s by Jack Hutson

Volume based indicators

  • Money Flow - the amount of stock traded on days the price went up
  • On-balance volume - the momentum of buying and selling stocks
  • PAC charts - two-dimensional method for charting volume by price level

Charting terms and indicators Topic - Technical Analysis

Technical analysis is a security analysis discipline for forecasting the future direction of prices through the study of past market data, primarily price and volume.


 
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