/ How to learn to read charts and use technical analysis?

Technical analysis seems complicated, but it's really just a way to predict price movements using charts. It is based on analyzing past data and looking for patterns. Many people think it's magic or intuition, but it's actually a system that uses statistics and logic. If you understand the basics, you can learn to understand the market and make more informed decisions. Charts help identify trends, support and resistance levels, and entry and exit points. The better a trader understands these elements, the greater the likelihood of successful trading. 

What are charts and why read them

A chart is a visual representation of price changes over time. It helps to see trends, support and resistance levels, as well as possible entry and exit points. Traders use charts to analyze market behavior and find good moments for buying and selling.

Types of charts

There are several types of charts. The main ones are line, bar and candlestick charts. A line chart connects the price closing points for certain time intervals. It is simple and convenient, but gives little information. A bar chart consists of vertical lines with horizontal dashes. The upper point of the bar shows the maximum price, the lower point - the minimum, and the horizontal dashes show the opening and closing price. The candlestick chart is the most popular. It looks like a set of colored candles. Each candle shows four parameters - open, close, high and low price. If the candle is green or white, the closing price is higher than the opening price. If it is red or black, the closing price is lower.

Basic elements of technical analysis

To analyze charts, you need to understand the basic elements of technical analysis. These are support and resistance levels, trends, indicators and candlestick patterns. A support level is a price below which an asset usually does not fall. It is created when buyers actively buy the asset at a certain level, preventing the price from falling below it. A resistance level is a price above which the asset is difficult to rise. This is where sellers start actively selling, preventing the price from rising further. If the price breaks through a support or resistance level, it can mean the beginning of a new trend.

Trends and their types

The market moves in three directions - up, down or sideways. These are trends. An uptrend is when price is constantly updating highs and lows, moving upward and creating a sequence of higher peaks and troughs. A downtrend is when price forms lower highs and lows, indicating a decline. A sideways trend is when price moves in a narrow range without a clear direction. To identify a trend, you can use trend lines, which connect key lows and highs on a chart.

Popular Technical Analysis Indicators

Indicators help traders analyze data and predict price movement. The most popular indicators are moving averages, RSI and MACD. Moving averages help to smooth out price fluctuations and determine the general direction of the trend. The longer the moving average period, the smoother its line. RSI is an indicator of the strength of price movement. It shows whether an asset is overbought or oversold. Values above 70 indicate overbought, below 30 - oversold. MACD is an indicator that helps to determine the strength of the trend and the moments of possible reversal. If MACD lines cross upwards, it can be a buy signal. If down, it is a sell signal.

Candlestick patterns

Candlesticks on the chart form certain patterns that can predict the future price movement. The most famous of them are hammer, doji and engulfment. A hammer is a candlestick with a long lower shadow and a small body. It indicates a possible reversal of the uptrend. The Doji is a candlestick with almost equal opening and closing prices. It indicates uncertainty in the market. Absorption is a two candlestick pattern where the second candle completely absorbs the first candle. It is a strong signal of a trend change.

How to apply technical analysis in practice

To use technical analysis, you need to follow simple steps. First, identify the current trend. Then find support and resistance levels. Next, connect indicators to confirm the signals. Finally, watch for candlestick patterns that may indicate a reversal or continuation of the trend. It is best to practice on a demo account first. This will help you understand how charts work without losing real money.

Conclusion

Technical analysis is a powerful tool that helps you make informed decisions in trading. It does not give a hundred percent guarantee of success, but it allows you to better understand the market and minimize risks. The main thing is to practice, study charts and follow trends. Over time, reading charts will become intuitive, and trading decisions will become more confident.