Trading Analysis by Michael Ross

Author:Michael Ross
Language: eng
Format: epub
Tags: Forex, trading, analysis, technical analysis, technical analysis of stock trends, Investing, make money, 2018, make money online, stock market, commodities, options market, option, money, Daily trading, trading for living
Publisher: Michael Ross
Published: 2018-11-16T00:00:00+00:00

Chapter 4:

Charting with Candlesticks

Candlestick basics

Candlestick trading starts with a price bar, which is a visual representation of the movement that a particular stock has taken over a preset amount of time that can be either weekly, daily, hourly, every 30 minutes or every 5 minutes.

When it comes to creating a price bar that is truly accurate you will want to collect a few different pieces of information. First, you will want to consider the price the stock in question started the day at, the next is the amount that it peaked at, you will also want to know its overall low point, and finally, the closing price. When you plug this information into the platform that you are using you will see that the data is ultimately plotted so that it looks like a box that has been struck through with a line. The points of that line equate to the low and high price while the outer bottom and uppermost edges of the box signify the closing as well as the opening price. Stocks that ended higher than they started are colored in one color and stocks that ended lower than they started are then colored in using a separate color.

Range: The range of the candlestick can be thought of as the visual representation of the level of volatility that the market is currently facing. The greater the level of volatility, the less reliable you can expect your plans to be throughout the trading process when compared to the historical averages for the trends they are following. You can then determine the volatility of the market by looking at the size of the line in relation to the size of the box. If the volatility is already high, then the box will be large, and the line will be smaller. If the volatility is currently low, then things will be reversed.

Body: The body of the candle includes the orientation of the box in relation to the closing and opening price. If the price ends up closing higher than where it opened, you can assume the market improved overall, while the reverse will also be true. It is equally important to take note of the size of the box as a whole because the greater the size of the box, the stronger the market will remain overall. If the box ends up being so large that it completely consumes the bar, then that is a sign that the market is currently experiencing a period of neutral flux.

Split line: Once you have a firm grasp on the range as well as the body you will then want to move your attention to the top half of the line. This line portion then caps at the highpoint for the price for the day while at the same time indicating the point where the supply once more began exceeding demand, thus resulting in an overall decrease in price. This also means that the top point of the line can be thought of as the maximum amount of pressure that that the underlying stock experienced in the chosen timeframe.

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