So investors use balance sheets , financial ratios to determine if the stock will go up or not , how does technical analysts determine that ? By the use of technical charts , here is an example of a technical charts of ULTRATECH cement below –
So what does one think when they see a technical chart like this ? There are a lot of lines there !! Yes exactly it might look non meaningful if you take a first glance at it but when you start understanding the charts it reveals a lot about what might happen in the future .
So now look at the D at the top left corner of the chart , it defines the timeframe of the charts i.e each candlestick is equal to a days time of trading , the time frame can be ranging from a 1 minute chart where one candlestick shows one minutes time of trading action to one month time frame which shows the whole months trading action fit into one candle , now you must be thinking what the hell is candlestick ?? Don’t worry we will be covering the ins and outs of the candlestick charts in the future article.
So now we have covered the time frames , so now you must be wondering what are MACD and Stoch mentioned below in the chart which has couple of interlacing lines , well these are what we call the Indicators , all the indicators are derived from price that is most indicators are lagging in nature , they fit their name and only indicate the scenario to us , they are a supportive method in our analysis of the stocks , we will cover the indicators in our future articles .
Also you might have seen two horizontal blue lines on the charts , well they are the support and resistance lines , they indicates the area from where the stock might reverse its trend , resistance is the area where stock faces resistance and where supply exceed demand hence the stock reverses and moves down from resistance , support are the areas where stock gets support and stops falling further , at support demand outweighs supply hence pushing the stock higher , there are different types of resistance and support , we will cover them in future articles.
Finally you might have seen the vertical green and red bars in between the indicators and the candlesticks , well they are the volume bars , volume is the number of trades done in a particular stock , if one person buys 1 stock and other person sells it at the same price then the volume will be 1 since 1 stock has changed hands , likewise the volume is calculated and shown as per the time frame used ,for ex daily timeframe combines the whole days buy and sell numbers and shows it in form of a vertical bars on the chart , we will cover volume thoroughly in future articles.