Stock trading has many technical tools that traders use to aid them in decision making. The most prominent of these tools is the bar charts and candlestick charts.
Bar and candlestick charts
Bar and candlestick charts display information on price trends over a given time, such as the daily closing prices or weekly opening prices. By studying which patterns cause specific responses from the market, investors can predict how stocks will behave in the future under different conditions.
Bar charts
Bar charts display stock data for a particular commodity, company or index using bars of different lengths to show whether it is rising (shorter bars) or falling (longer ones). On average, short (white) bars indicate that an asset’s value increases while long (black) ones inform about a decrease.
The stock price is plotted on the X-axis and time on the Y-axis. If you purchase a stock at closing, meaning that its bar charts will only display opening time points at the end of the trading session.
Bar charts are handy when analyzing long term trends in prices. One issue with this type of charting is that they omit any information about volatility or daily ranges, which you can find in candlestick charts.
Candlestick graphs
Candlestick graphs represent a particular day’s trading activity in a single rectangle or box whose colour depends upon whether it closed higher than its opening value (white) or lower (black). The line protruding from either end of these boxes is called the real body and shows whether the close price was higher or lower than the open price.
The upper part of the rectangle is the upper shadow, and the bottom part is the lower shadow. The line that connects these two parts is known as the lower wick, while the end of a box where it appears to touch its upper shadow, but doesn’t, is termed an upper wick.
The length of both shadows shows how volatile a particular day’s trading was. Short candlesticks indicate low trading activity, while long ones usually mean high volatility in prices. The presence of small natural bodies suggests a lack of clear trends, leading to choppy markets with lots of indecision.
Candlestick charts
Candlestick charts are better for depicting market sentiment since they show whether everyone who bought at the open decided to sell at the close or vice versa. The opening and comparable figures are typically displayed on top of the box, while the high and low values are presented below.
Stochastic Oscillators
Stochastic oscillators are technical indicators that assess the current price against a range of prices over several periods. The trend should be going up, and the price should make new highs. When the trend is down, the price tends to make new lows. The stochastic indicator tracks this.
The trend will change direction when it reaches a specific level (zero or 100), at which point it will shift from being an upward progression to one that moves downward.
The stochastic rises and falls swiftly since the price rarely makes continual highs or lows, keeping the stochastic close to 100 or near zero. As a result, the stochastic is frequently employed as an overbought and oversold signal. Oversold levels are defined as those below 20, while overbought levels are defined as those greater than 80.
Consider the trend in the overall cost when using overbought and oversold levels. When the indicator falls below 20 and then rebounds, that is a possible buy signal during an uptrend. Because we anticipate the indicator to move to 80 and above regularly during an upward trend, rallies over 80 are less critical.
Look for the indicator to rise above 80 and then fall below to signal a possible short trade during a downtrend. In a downward trend, the 20-level is less significant.
In conclusion
Every short-term trader has a goal in mind: to figure out the trend of a specific asset and then make money off it. There are hundreds of technical indicators and oscillators available for this purpose, and this presentation has included a few that you may utilize right now. Use the signals to develop new strategies or consider embedding them into your existing procedures.
If you would like more information about technical tools for stock trading in Amsterdam, contact Saxo NL.
