One of the most important tools, which an online trader has to frequently rely upon, is his trading charts. Appearing in many formats, they help to present the price movements of an instrument in a graphical manner. In fact, almost anything that occurs in the market can be represented on a price chart.
There is a very logical reason why trading charts are so important for an online retail trader. It should be noted that about 80% of the trading activities that are happening in the market are the result of the trading activities of large institutional traders. Their large volume transactions are what make the prices in the market move.
If you are to succeed in trading the markets as a retail trader, you will need to follow in the footsteps of the large institutional players. In short, you need to be buying when the institutional traders are buying and selling when they are selling. So how do you tell when to buy and when to sell? The answer lines in the price chart. This is why it is crucial for every trader to learn how to read price charts and use the information gathered from the price chart to determine the future direction of prices. Once the determination has been made, you will be able to objectively decide if you should buy or to sell.show more
Charts not only record prices, they can also show the volume traded. Hence any changes in prices and volume traded can indicate the following:
The best thing about charts is the fact that all the information presented by the chart is objective. It is not a result of rumors or hype. It simply states what has happened in the market. When prices are rising, this is an indication that buying forces are pushing up prices due to increased demand. If prices on the other hand are falling, then it is the result of selling forces pushing down prices.
While price charts can come in many forms such as line charts, bar charts or candlesticks charts, they can also be categorized into the following:
As the name imply, commodity charts are charts that depict the price movements of commodities. Commodities are generally traded as futures contracts as the supply of commodities are usually time bound and any changes to the demand and supply equation will require time to adjust.