Chart Analysis | Share Market Learning Series | Learn about Trend, Strength, Volatility along with Context Analysis

Various Steps in Chart Analysis

In this post we will find few steps to do chart analysis, so that we can come to objective conclusion about the instrument.

While analysing any instrument, we need to have good understanding about following:

• Trend
• Strength
• Volatility

The above three will give a clear picture about what is the current state of instrument. Each carry different information to define what & how will be the future price movement.

Trend:

Main objective in technical analysis would be to find trend of the instrument. Basic principle in share market is "Buy lower & sell higher". To find what is the current direction of the instrument, we need to know about Trend. Trend may differ in different Time Frame. So we need to know what is the trend in Time Frame where we trade.

Few methods to analyse trend: Structure of instrument, MTF Analysis, Candlestick Analysis

Structure Analysis:

Pivot Analysis, Gaps

Multiple Time Frame Analysis: 

Higher TF to Lower TF analysis. (Monthly, Weekly, Daily)

Candlestick Analysis:

Candlestick Patterns 

Strength:

Along with identifying trend, we need to know how strong the trend is to ride the trend. Weak trends may not give good results. So analysing strength is equally important to finding a trend

Few methods to analyse strength are: Volume analysis (VSA), Momentum Analysis (E.g.: RSI)

Volatility:

Trend & Strength are good enough to start trading an instrument. But to hold or ride a trend, we need to understand the nature of volatility of that instrument. E.g.: For a high volatile instrument, there will be deep pullbacks even though trend is higher and strong. So to hold an instrument we need to have different approach for instrument with different volatility.

Few tools to measure nature of volatility are: Bolinger Band, ATR 

Context Analysis:

With above three analysis we can form a picture of what will be the future action of the instrument. But in share market always future is with probability. So we have to constantly evaluate our analysis with real time price movement.

We can do the above with context analysis. Context Analysis is nothing but understanding what is happening with respect to where it is happenning. We have different candlestick pattern, price patterns to do technical analysis. But most of them fail to understand that these patterns have to be used along with the context. 

In above post, i have introduced about various chart analysis & how to use them effectively.

Keep Learning 🕮

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