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Reading your charts is the most fundamental element in trading. Let's look at three chart types:
The below chart shows the closing price of each day and is favored by novice traders:
The below chart is an old school chart that dates back to the days of graph paper. It is still favored by old timers and people trained by an old timer.
The below chart is known as a "candlestick chart" and is favored by MarketPirates.
Each bar represents a period of time defined by you (5 minutes, 1 hour, 1 day, etc.). If the price ended(closed) the time period higher, then the body of the bar (the fat part) is green (also hollow on some charts).
If the time period closed with a lower price than it started, the body will be solid red. The
"wicks" extending above and below the body represent the maximum and minimum price during the time period.
Moving averages are useful in viewing the smoothed trend and finding support and resistance. The chart
below has 20 day, 50 day, 100 day, and 200 day moving aveages (DMA). The averages are watched by key market players and will affect the buying and selling choices that they make.
Resistance is a price zone that is difficult for rising
prices to get through. Support is a price zone that can stop
falling prices.
In the chart below you see Support and Resistance effects of specific price levels. Note that
when 1200 was broken in 2008 the market dropped sharply. This is a common effect of breaking support.
Prices rise slower than they fall, so the breaking of
resistance usually involves multiple tries or constant
pressure.
Fibonacci retracement lines will also reveal areas of support and resistance:
Confluence areas
occur when multiple Support/Resistance methods agree (e.g.
200 DMA + Fibonacci level):
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