There are many types of analysis in the market to predict future price action. Below are some of that:
- Candle Chart Analysis
- Fundamental Analysis
- Option Data Analysis
- Elliot Wave / Price Cluster
Some people say Candle Chart is good, Fundamental is the only way, or Elliot Wave is amazing. Everyone is stating as per their own experience.
I feel all these types of analysis works well. The point is which one suits you as per your thought or grasping power. Personally, I have studied the first 3 methods and I am using it as per the situation.
- If my view is short to medium-term investment then I love to prefer Candle Chart.
- When my view is medium to long term then I go for Fundamental and for accurate entry point take help of Candle Chart.
- Options Data is using to identify the sentiments for a day or two days.
Today, we are going to discuss Candle Chart Analysis (i.e. Technical Analysis). First of all, we will see the required basic + important things of Chart Analysis.
- Indicators / Oscillator
Candlestick: The candlestick is the base of Technical Analysis. It is the combination of four value points i.e. Open-High-Low-Close and each candle having these values. Sometimes Open=Low, Open=High, Close=High, or Close=Low in this case candlestick do not have Low or High. Below are types of the candlestick:
Importance of Candlestick: Each candle gives indication like positive, negative, or neutral. Every candle’s indication is identified by its color & shape and each candle has a specific name. Below is the table for easy understanding.
There are many candle patterns like Harami, Engulfing, Piercing, etc. which gives a bullish or bearish signal.
Volume: It is the number of shares or contracts traded in a security or an entire market during a given period of time. That is, when buyers and sellers agree to make a transaction at a certain price, it is considered one transaction. If only five transactions occur in a day, the volume for the day is five.
Role of Volume: It is an essential part of the candle chart analysis, the volume helps to indicate the strength of the candle. For example, if the price is cross its resistance and closed above the same then it called a breakout. If the volume of the breakout candle is greater than average volume then we can say that breakout is strong and vice versa.
These are the supportive tools that indicate the overbought or oversold level of price. It helps to make strong confirmation for buy or sell and there are many indicators are available like MACD, RSI, Bollinger Band, etc.
Role of Indicator/Oscillator: All indicators are working as a supportive tool which helps to make strong confirmation while trading.
Key Points to Take Care:
- Always buy near support/bottom and sell near resistance/top.
- A bullish candle or pattern near support is a strong buying signal.
- Bearish candle or pattern near resistance is a strong selling signal.
- Volume should be greater than the average volume on breakout or breakdown candle.
- Buy the stock when the indicator is oversold and sell when overbought. Make a combination of candlestick, volume, and indicator to find a good opportunity.
Frankly, I feel using these 3 things Technical Analysis is the best way for the medium-term player. One thing is for sure you cannot do the long term investment with the help of Technical Analysis.
You cannot become a good trader or investor just by learning things or rules of the market. You have to practice it hard.
Disclaimer: The contents produced here are purely for educational purposes. They should not be construed as buy/sell recommendations. I am not a SEBI registered Analyst or Investment Advisor. Readers are advised to consult their Investment advisor before taking any decisions based on the above write-up.