Trade Stock Indices

How Do I Interpret a Indices Chart

When it comes to the market the chart is the basic tool used by all traders. The chart will show information about a indices instrument - the chart will illustrate the general direction of prices, the chart also will show the ruling price of indices and the chart will also explain historical movement of chart prices.

Traders will use these trade charts to determine where to open trade positions. From the chart the trader will analyze market movements using indicators so as to determine the direction of the market and determine the trade to open.

Traders must therefore learn how to use charts before they can start transacting in the online market.

The following are the various things that a trader will need to know about stock charts.

Types of Charts

There are 3 types of charts

Line Chart - this charting method draws a continuous line that connects the closing trading prices. For example if a trader is using the 5 minutes chart then this line chart will draw a continuous line which connects closing price of the market after every five minutes.

Bar Stock Indices Chart - This chart use bars to illustrate stock trading price movements, and plots OHCL - Opening trading price, High, Low, & Closing price for that period, for example if the period used is five minutes, the bar will represent the price data and OHCL points for the 5 minutes.

Candlestick Charts - The are the most popular chart types because they're the most visually appealing & they represent the price movements in an easily identifiable way which clearly show when a market moves up or when it moves down using different colors to differentiate the direction. These candlestick chart look like a candle and they have a body that resembles the wax part of a candle and an upper & a lower poking line that resembles the wick of a candlestick.

Chart Periods - Time-frames

A stock chart will draw charts based on different time periods - these are 1 minute, 5 minute, 15 minutes, 1 hour, 4 hour, 1 day, 1week and 1 month. The period used to draw chart info also is referred to as a chart time-frame, for example the 5 minutes trading chart period is commonly referred to as the 5 minutes trading chart by the trader. This 5 minute chart time-frame will represent info for the five minutes of trading, after those five minutes another set of info will be used to draw another chart representation. For examples if a trader is using candlesticks chart, the data of one candle will draw information of that five minutes, after those five minute another candle stick will be drawn using price data of the next five minutes - when these candlesticks are combined they then make a graph representation that shows the general direction of prices often known as the trend. Traders then can use this info to make trade decisions.

Because the most commonly used charts are candlesticks charts we shall discuss how to read charts specifically candle charts.

How to Use Candlestick Charts

The candlestick charts uses candle that have different colors to represent different stock trading price moves, blue candles show trading prices closed higher than they opened, red candles show trading prices closed lower than they opened. This color representation is then used by stock traders to determine when price has moved up/down.

The candlesticks also show OHCL:

O - Opening Indices Price

H - Highest Indices Price

C - Closing Indices Price

L - Lowest Indices Price

These trading price points are represented using a formation which looks like a candle, distance between the opening price & closing price is represented by what is referred to as body, this part resembles the wax part of a candlestick. The high price is represented by a poking line protruding upward, this line resembles the wick of a candlestick, the low stock trading price is represented by a poking line protruding downward & it also looks like a candlestick wick facing down.

Candlesticks

A trader can also add a stock technical indicator in the chart so that they can interpret the chart market using these indicators. Traders will need to place indicators on the trading so that they can get additional information about a market trend & hence be in a better position to make a more informed decision. These indicators can be used to predict the likely market direction that the market is likely to keep moving in whether up or down.

A trader can use indicators such as the moving averages and Bollinger to determine the market trend. Traders also can use other indicators such as the RSI & stochastic oscillators trading to determine when to open trade positions.

Trend lines are also used to determine the direction of the candlestick charts trends & these lines can drawn on the trading charts to illustrate this direction. A upwards trend will be shown by a trend line is moving up while a trend that is moving down will b e shown a trendline which is moving downwards.

To learn how to draw a trend line & how to trade using trading analysis a trader can learn about the trend line lesson under the learn indices lessons section of this websiteesite, for indicators a trader can learn about stock indicators & their trading analysis on the trading indicators section of this site.

More Lessons & Tutorials:

Forex Trading Seminar Gala

Forex Trading Seminar

Stock Index Broker