May 6, 2021 | AtoZ Markets – Technical analysis studies price movements using charts most of the time. In this study, technical analysts and technical traders observe, focus, and analyze the price movement’s history, current trading state, and future potential actions. It is one of the three market analyses together with fundamental analysis and sentiment analysis.
But why charts?
Studying price movements has never been this easy since charts are very visual. We can see the way the price behaved in the past and the present. As a technical analyst or technical trader, it is essential to learn how to use a price chart. It must be the very first tool that a technical analyst or trader has to know by heart. A chart visualizes the currency pair’s price in a given time frame. Thanks to price charts, we can imagine trading activities in a trading period regardless if it is only a few minutes, hours, days, weeks, or even months. Charts are very effective tools for analyzing given data. They provide us with a basis for knowing the probability of risks since price changes are usually random events. We can take note of the currency pair’s movements, patterns, and possibilities.
The x-axis and the y-axis
Just like in mathematics, plotting prices in a chart is no different. The x-axis is the horizontal axis that stands for the time scale. On the other hand, the z-axis is the horizontal axis that stands for the price scale. Now, the plotting goes from left to right, crossing the x-axis. The ones furthest to the right are the most recent. Today, again, charting has never been this easy since we are already in the modern age with technological advancement. We have computers, electronic devices, and the internet with us. Not only are they accessible anywhere, but it makes our lives easier since the software will be the one to draw the charts for us and we do not have to manually draw, write, and scale our charts.
Price chart representations
A price chart lets us visualize what happens in supply and demand. Price charts collect all buy and sell transactions at a given time frame. A chart also indicates news and headlines and the traders’ perspective on what the future news will be. As soon as the future we are talking about arrives and the reality is not how we perceived it to be, then there will be price changes again. In short, when the future news becomes the current known news, traders will also change their expectations about the forthcoming news again. This cycle is like a loop.
Charts put all participant activities in one place regardless if these are from humans or algorithms. It will all be mixed in one place for technical analysts and traders to study and analyze.
Charts, charts, charts
Hearing the word chart connotes a lot of things depending on people. Some find charts boring, and some find them complex and hard to understand. However, if you are a trader and want to succeed, charts are there to help you attain that.