Trading is a challenging task, but proper risk management can help ensure consistent profits. However, this is possible only if the trader develops a proper mindset to reading charts. The ability to analyse charts not only boosts a trader's morale but also helps one acknowledge the risk involved.
Here are five tips which can help traders improve chart reading:
Support and resistance levels
Finding support and resistance areas for stocks you want to trade is a must. One might get a good trade, but in uncertain markets, it is the support and resistance that work phenomenally. There are several ways to identify support and resistance. For eg: one should identify the areas where the price manages to reverse, makes a strong base, and the range that shows weakness. These levels act as support and resistance, assisting in trading greatly. Secondly, one can also look for candles that show tremendous moves with a firm strength -- such moves act as strong signals as their lows or highs act as crucial levels for the next move. CLICK HERE FOR THE CHART
Learning to draw a perfect trendline from the respective highs or low gives traders the confidence to take that certain trade. Trendline breakouts attract traders and are regarded as the most crucial aspect of trading. Even trendline breakouts on many technical indicators have been classified as trend-following confirmations. CLICK HERE FOR THE CHART
Chart formations & candlestick patterns
Various chart formations like Head and Shoulder, Double Top, Triple Top, Flag pattern, various price channels, etc. and candlestick patterns like Bullish engulfing, Bearish Engulfing, Morning star Evening Star, Doji, Hammer, etc facilitate in confirmation of a trend. If correctly identified, these can even reflect breakout moves. As one gets accustomed to these chart patterns, a daily look at major stocks can help provide the trader with the outlook, which only improves with practice. This enhances the trader's morale and self-confidence. CLICK HERE FOR THE CHART
Keep a tab on volume
Volume plays a crucial role in trading. One must always keep a tab on the delivery volumes as that is what determines the overall sentiment of the market participants. Likewise, when the stock begins to show momentum, if it is not supported by decent volumes, then the rally may not provide the intended move. It is safe to enter a stock that shows an increase in participation and the same can be confirmed with the volume structure. A continuous increase in volume on the daily time frame suggests a possible upside in the stock, going ahead. CLICK HERE FOR THE CHART
Correlation of charts
To better understand and confirm a trend, one needs to learn to correlate the daily, weekly, and intraday charts. If the trend is common in these three time frames, with an addition of a strong move and a firm trend on the intraday chart, the signal and trigger is said to have gained maximum confirmation.