iCharts Discussions

[jdpt]

A bar is simply one segment of time, whether it is one day, one week, or one hour. When you see the word 'bar' going forward, be sure to understand what time frame it is referencing.

Bar charts are also called "OHLC" charts, because they indicate the Open, the High, the Low, and the Close for that particular currency. Here's an example of price bar:

[jdpt]

Candlesticks Charts

Candlestick chart show the same information as a bar chart, but in a prettier, graphic format.

Candlestick bars still indicate the high-to-low range with a vertical line.

However, in candlestick charting, the larger block (or body) in the middle indicates the range between the opening and closing prices. Traditionally, if the block in the middle is filled or colored in, then the stock closed lower than it opened.

In the following example, the 'filled color' is red. For our 'filled' blocks, the top of the block is the opening price, and the bottom of the block is the closing price. If the closing price is higher than the opening price, then the block in the middle will be "green" or hollow or unfilled.

[jdpt]

Here is an example of a candlestick chart for Nifty.

[jdpt]

The purpose of candlestick charting is strictly to serve as a visual aid, since the exact same information appears on an OHLC bar chart. The advantages of candlestick charting are:

Candlesticks are easy to interpret, and are a good place for beginners to start figuring out chart analysis.

Candlesticks are easy to use! Your eyes adapt almost immediately to the information in the bar notation. Plus, research shows that visuals help in studying, it might help with trading as well!

Candlesticks and candlestick patterns have cool names such as the shooting star, which helps you to remember what the pattern means.

Candlesticks are good at identifying marketing turning points - reversals from an uptrend to a downtrend or a downtrend to an uptrend.

Now that you know why candlesticks are so coool



JDPT
_______________________
Just Trade What You See.

[jdpt]

Support and Resistance

Support and resistance is one of the most widely used concepts in trading. Strangely enough, everyone seems to have their own idea on how you should measure support and resistance.

Let's take a look at the basics first.

[jdpt]

Look at the diagram below. As you can see, this zigzag pattern is making its way up (bull market). When the market moves up and then pulls back, the highest point reached before it pulled back is now resistance.

As the market continues up again, the lowest point reached before it started back is now support. In this way resistance and support are continually formed as the market oscillates over time. The reverse is true for the downtrend.

[jdpt]

Plotting Support and Resistance

One thing to remember is that support and resistance levels are not exact numbers.

Often times you will see a support or resistance level that appears broken, but soon after find out that the market was just testing it. With candlestick charts, these "tests" of support and resistance are usually represented by the candlestick shadows.

[jdpt]

So how do we truly know if support and resistance was broken?

There is no definite answer to this question. Some argue that a support or resistance level is broken if the market can actually close past that level. However, you will find that this is not always the case.

Let's take our same example from above and see what happened when the price actually closed past the 5181 support level.

[jdpt]

In this case, price had closed below the 5181 support level but ended up rising back up above it.
If you had believed that this was a real breakout and sold this, you would've been seriously hurtin'!

Looking at the chart now, you can visually see and come to the conclusion that the support was not actually broken; it is still very much intact and now even stronger.

To help you filter out these false breakouts, you should think of support and resistance more of as "zones" rather than concrete numbers.

One way to help you find these zones is to plot support and resistance on a line chart rather than a candlestick chart. The reason is that line charts only show you the closing price while candlesticks add the extreme highs and lows to the picture.

These highs and lows can be misleading because often times they are just the "knee-jerk" reactions of the market. It's like when someone is doing something really strange, but when asked about it, he or she simply replies, "Sorry, it's just a reflex."
When plotting support and resistance, you don't want the reflexes of the market. You only want to plot its intentional movements.

Looking at the line chart, you want to plot your support and resistance lines around areas where you can see the price forming several peaks or valleys.

[Shahii]

JD Bhai.. I salute you for your dedication in writing these posts in such a detailed manner. May God Bless you.

[jdpt]

Dear Shahii, thanks a ton for your support & encouragement.

[Transcap69]

JDPT,
After a long time we have come across a very good informative & educative material. A lot of material in the forum is about levels,forecasting etc etc.But your post stands apart as a very dedicated effort..keep up...

[shrikanthiyer]

I have no words to describe, just superb. Your post is one of the best and most informative which I am sure will benefit all. Even though I have been associate with share market for last 2-3 years, I have never come across such wonderful article. Hats off to u....

Thanks

[p_wangdu]

basics to trading mindset

[p_wangdu]