2a. Charts Reveal Price Trends

Markets move in trends. The major value of price charts is that they reveal the existence of market trends and greatly facilitate the study of those trends.Most of the techniques used by chartists are for the purpose of identifying significant trends, to help determine the probable extent of those trends, and to identify as early as possible when they are changing direction (See Figure 2-1).

Types of Charts Available

The most popular type of chart used by technical analysts is the daily bar chart (see Figure 2-1). Each bar represents one day of trading. Japanese candlestick charts have become popular in recent years (see Figure 2-2). Candlestick charts are used in the same way as bar charts, but present a more visual representation of the day’s trading. Line charts can also be employed (see Figure 2-3).The line chart simply connects each

successive day’s closing prices and is the simplest form of charting.

Any Time Dimension

All of the above chart types can be employed for any time dimension. The daily chart, which is the most popular time period, is used to study price trends for the past year. For longer range trend analysis going back five or ten years,weekly and monthly charts can be employed.For short-term (or daytrading) purposes, intraday charts are most useful. [Intraday charts can be plotted for periods as short as 1-minute,5-minute or 15-minute time periods.]