& EXAMPLE TRADE
On any given trading day, the most significant points are:
No matter what we are looking at, all we truly care about is what's going to happen to it's PRICE.
After all, it's the change of price that allows us to "buy low and sell high".
The price moves up and down depending on the demand and supply in the market.
Much like increased demand for houses makes the prices go up, the same applies here.
Open - what the price was when the market first open. For example, for a UK share this would be the price first published at 8am.
High/Low - the highest and lowest points the price got to, these can occur at any point during the day.
Close - the price when the market closes. For example, for a UK share this will be the price last published at 16.30.
A candlestick is a visual interpretation to show the key prices over a trading day.
From one candlestick we can see the open, high, low and close prices.
The price is displayed vertically.
The candle "body" shows the difference between the open and close.
The "stick" shows the high and low of the day.
On this particular day, we can conclude the following prices :
Open = 85
High = 92
Low = 84
Close = 91
In this case, the price closed above the open - so in other words the price went UP.
In trading terms we call this being " BULLISH ".
And for this reason the candle body is green.
By the same principle, we can also show when prices go DOWN.
So this would mean the closing price is lower than the opening price, hence why the candle is red.
This is also called being " BEARISH ".
On this day, we can see that :
Open = 91
High = 92
Low = 84
Close = 85
We can combine multiple candlesticks together to show what has happened to the price over a period of time.
Here we have a "candlestick chart" showing what has happened to the price of Gold over the past 4 months.
Technical Analysis is the way we look at the historic prices available to us to make logical decisions on when to buy or sell
The assumption here is that history repeats itself over time and we can use this to our advantage to make educated trading decisions.
Financial markets reproduce the same repeitive patterns over and over again - and we can use the candlestick charts to spot these patterns.
So in order to use Technical Analysis for trading, we can look for specific patterns in the charts with a good idea of knowing what the price may do next.
Trader Profile : Ed Seykota
Technical Analysis patterns
Turned £5,000 into £15,000,000
"In order of importance to me are :
1) the long term trend
2) the current chart pattern
3) picking a good spot to buy or sell "
If a price has been trending up (i.e. steadily going up over time), then a SYMMETRICAL TRIANGLE is likely to indicate that the price is going to CONTINUE to go in the same direction.
Let's say prices have been going up gradually recently.
If the above pattern forms, it is likely that the price will continue to go in the same direction - therefore this is an indication to BUY with an expectation that the price will RISE.
The patter is formed in times of indecision between the deman and supply, subsequently resulting in the "sideways triangle" which we can draw in as above.
Note : we would only look to BUY once the pattern is complete, which happens at point (a).
TIP : The above principles can also be applied to prices going DOWN
CHART PATTERN : SYMMETRICAL TRIANGLE
REAL EXAMPLE : NATURAL GAS
Here we have a real-life example of the Symmetrical Triangle in action.
This is the candlestick chart for Natural Gas, showing what happened to the price since March 2016.
We can see that prices were going up, and after a little while of indecision a symmetical triangle was formed.
The pattern completed at point (a), and this was an opportunity to BUY, with the expectation of the price rising.
We were alerted to BUY at the end of May, at a price of 2.1
The price went immediately in our favour, and by the beginning of July was trading around 2.9