Technical Analysis: your first step in Day Trading
Technical analysis focuses on the behavioral swings in prices and attempts to predict future price direction through indicators. There are several well know patterns in TA which forms time and again from mass psychology of the market. Patterns are usually associated with a particular market scenario and it pays to observe and capitalize on them.
There are several means of price representation, we can represent it in the form of a line chart which plots the price versus time or as a bar chart or candlestick chart. I will discuss only candlestick charts as this is one of the simplest yet effective representation of price.
There are two types of candlesticks as shown in the figure above. There is a time parameter to candlesticks. You will need to specify the time duration of the candlestick, for example, 1 min, 5min, 60min, 1day, etc. Candlestick condenses the open high low and close prices of the specified time duration into a single diagram. For example, if you specify the duration to be 5minutes, the high low open and closing prices during that 5mins will be displayed as a candlestick. Candlesticks are further divided into two types : rising candle and falling candle. Rising candles and falling candles have different color codes to make them more visually distinct. The closing price for a rising candle is higher than the closing price. Likewise, the opening price for a falling candle is higher than the closing price. The rectangular box in forms the “body” of the candlestick and lines extending beyond the body are called “shadows”. The upper shadow represents the high and the lower shadow represents the low for both the rising and falling candlesticks.
