Given the plethora of options in which currencies are traded these days, it can help to pick specific methods in chart patterns to save on time, money and effort. As a trader, you can fine-tune some of the conventional and easy methods to build a holistic intraday trading plan with the help of chart patterns that occur regularly. If you have a trading account with a full-service broker such as Kotak Securities, you can begin your study on understanding chart patterns for successful trading.
With time and practice, you will be able to spot the right movement easily and pick up the nuances of a fruitful intraday trading method. In this article, we look at the top three intraday charts that offer visual rules to help you trade effectively. Some of these patterns may appear complicated; however, you can be at an advantage through simple methods of the most commonly traded components in these patterns.
This technical tool is useful in consolidating information within a specified timeframe into individual bars. Understanding these patterns can be relatively easy to interpret. Moreover, trading with candlestick charts can give you an edge over other traders. They provide a clearer picture and flag future price movements or trading signals. They are similar to bar tables as they are time-based and indicate the opening, closing, the highest and lowest stock prices for a specific period. But you may want to pay close attention to the enlarged region that forms the body of the candlestick between the closing and opening prices. The candlestick comprises of a body, an upper tail and a lower tail. The body of the candlestick is typically red or green, that is an indication of the net price drop or net price rise of the closing price. If the closing price is higher than that of the opening price, you will notice a bullish candle. Similarly, if the opening price is higher than the closing price, you will observe a bearish candle. As an intraday trader, you need to look into certain pattern formations in the candlestick as vital trade signals.
As one of the most straightforward rating charts, a line chart has a time base, as each data point on the chart is from a fixed period. You can form a line chart by joining the closing price of the stock in each period. Line charts are critical in understanding long-term trends. You will also observe specific chart patterns in a line chart such as triangles, shoulders and heads.
Volume charts employ the level of market activity as their base, rather than using time. As an intraday trading chart, a volume chart depicts the volumes that are the number of contracts or stocks currently traded in the market.
Since time-based charts can be a hindrance, as there are specific times in the market without any activity, time-based charts may not provide an accurate picture of market activity, thus rendering them ineffective.
On the other hand, in volume charts, the volume of the market is represented as candlesticks or bars, and each bar represents a fixed one. With the help of a volume chart, you will realise that when the market is slow moving, the chart also slows down and provides little sideways movement.
As a trader, you need to identify if you are interested in employing a time-based or an activity-based chart. This can depend on your desired goals and the information you are seeking. Both these types of charts have their own pros and cons; however, they provide the most fundamental aspect of technical analysis.