Stock chart-Chart patterns and formations-Analysis of chart pattern
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This document discusses stock charts and chart patterns. It begins by defining different types of stock charts, including line charts, bar charts, and candlestick charts. It then explains common chart patterns such as double tops and bottoms, head and shoulders, triangles, channels, and wedges. Key aspects of these patterns like support and resistance zones are described. The document provides examples of each pattern and discusses how technical analysts use patterns to potentially predict future price movements and identify reversal signals.
Stock chart-Chart patterns and formations-Analysis of chart pattern
- 1. STOCK CHART - CHART PATTERNS AND FORMATIONS - ANALYSIS OF CHART PATTERN AKBAR ALI.K Dept. of Commerce Pondicherry University
- 2. STOCK CHART • A stock chart is a simple two-axis (x-y) plotted graph of price and time. • Each individual equity, market and index listed on a public exchange has a chart that illustrates this movement of price over time. • The study of stock charts, known as technical analysis, believes that the past action of the market itself will determine the future course of prices.
- 5. LINE CHARTS • Simplest type of chart. • Single line represents the security’s closing price on each time interval. • Dates are displayed along the bottom of chart and prices are displayed on the side.
- 7. BAR CHARTS • Bar charts are commonly used to convey price activity into a easily readable chart. • It display the open ,close, daily high and daily low price. • The total vertical length/height of the bar represents the entire trading range for the period. • Top of the bar represents the highest price of the period and vice- versa.
- 9. CANDLE STICK CHART • Candle stick chart are much more visually appealing, and convey the price information in a quicker, easier manner. • It display the open ,close, daily high and daily low. • The hollow or filled portion of the candlestick is called “the body” (also referred to as “the real body”). • The long thin lines above and below the body represent the high/low range and are called “shadows” (also referred to as “wicks” and “tails”). • The high is marked by the top of the upper shadow and the low by the bottom of the lower shadow.
- 10. Bullish Candle • Open at bottom of body. • Close at top of body. • High – Top of wick. • Low – Bottom of wick.
- 11. Bearish Candle • Open at top of body. • Close at bottom of body. • High – Top of wick. • Low – Bottom of wick.
- 15. CHART PATTERNS • Chart patterns are a result of market psychology. • It is a result of a mix of various emotions like fear and greed. • It can be used to make short-term or long-term forecasts. • The data can be intraday ,daily, weekly or monthly and the patterns can be as short as one day or as long as many years.
- 16. Support A support zone is an area where buying interest exits. As the price reaches the support zone, participants are more inclined towards buying. As the times passes by, demand will overcome supply and prevent the price from falling below support. It is not true that, support levels will always hold. Breaking a support level further increases bearishness in the market.
- 17. Support Zone
- 18. Resistance • A resistance zone is an area where selling interest exits. • As the price reaches the resistance zone, participants are more inclined towards selling. • As the times passes by, supply will overcome demand and prevent the price from rising above resistance. • Breaking a resistance level further increases bullishness in the market.
- 19. Resistance Zone
- 20. Support Becoming Resistance And Vice-versa When a support zone is broken, it can become a resistance zone for the future price movement and vice versa. One such example is shown below
- 21. Types of chart patterns • Double Top and Double Bottom • Head and shoulder & Inverse Head and shoulder • Symmetric Triangle • Rectangle • Rising & Falling Channel • Rising & Falling wedges
- 22. Double Top A double top is a reversal pattern which occurs following an extended uptrend. A pair of peaks is formed in which the 2nd peak is at a lower height compared to the 1st one. This signifies the weakness in prices to reach a new high and sustain the existing trend.
- 24. Double Bottom • A double bottom is a reversal pattern which occurs following an extended downtrend. • A pair of troughs is formed in which the 2nd trough is at a higher high compared to the 1st one. • This signifies the weakness in prices to reach a new low and sustain the existing trend.
- 26. Head and Shoulders • Head and Shoulders pattern occur at the end of an uptrend and is a signal of trend reversal. It consists of a left shoulder, head and a right shoulder. • Volume is the other thing that needs to be observed along with the pattern formation. In an uptrend, formation of a left shoulder is accompanied by high volumes. When the price reaches the peak point of left shoulder it retraces a bit with low volumes. • Price makes new high above the left shoulder forming the head with volumes lower than what it took to form the left shoulder. Price retraces again to the point where the head formation has started. • Formation of right shoulder is accompanied by low volumes. When price starts falling from the peak of right shoulder, rise in volumes is clearly visible. This confirms the start of bearish trend. • The neck line that connects the base of left and right shoulders and the head act as a support for the price. Once the neck line is breached, one can initiate new short positions.
- 27. Head and Shoulders Pattern
- 28. Inverse Head and Shoulder • Head and Shoulders pattern occur at the end of a downtrend and is a signal of trend reversal. • The neck line that connects the base of left and right shoulders and the head act as a resistance for the price. • Once the neck line is breached, one can initiate new long positions.
- 29. Inverse Head and Shoulder Pattern
- 30. Symmetric Triangle • It can be seen anywhere in the chart. • Price tend to follow in whichever direction the breakout has happened. • Lines are connected using Highs and Lows of candles. • Both the lines converge together.
- 33. Rectangle • A rectangle is formed by connecting the tops and bottoms of candles. • Both the lines move parallelly in horizontal direction. • Price tends to move in whichever direction there is a breakout.
- 36. Rising channel • A Rising channel is formed by connecting the tops and bottoms of candles. • Both the lines slope parallel in upward direction. • At any time the distance between the lines is same. • Breakout happens on the lower line and price tends to be bearish after that.
- 39. Falling Channel • A falling channel is formed by connecting the tops and bottoms of candles. • Both the lines slop parallelly in downward direction. • At any time the distance between the lines is same. • Breakout happens on the upper line and price tends to be bullish after that.
- 42. Rising Wedge • This pattern is seen at the end of an uptrend. • Two lines are drawn connecting the highs and lows of candles. • Both lines slope in upward direction but never come into contact. • Breakdown of lower line starts a new bearish trend.
- 44. Falling Wedge • This pattern is seen at the end of a downtrend. • Two lines are drawn connecting the highs and lows of candles. • Both line slope in downward direction but never come into contact. • Breakdown of upper line starts a new bullish trend.
- 47. THANK YOU….