Making sense of charting, an essential tool for traders
Talk to any trader and they’ll tell you the same time - trading is all about analysing and making an informed decision.
They would also agree on one thing - charting is an essential tool that helps them to examine market trends and provide insights with easy-to-view charts.
What is charting?
In a nutshell, charting looks at the price action and performance of a market asset, which includes stocks, index and many more. Through the use of historical data sets and pricing of the assets, charting is a visual representation of how the market has moved over time.
That’s the simple version. For traders, charting allows them to dive deeper to analyse and identify trends and moments that have or might affect the market.
Commonly known as technical analysis, this helps a trader determine and be prepared for any major market movements with the help of historic data.
The importance of charting
Trading requires a trained eye to examine and identify key trends in the market to make a move. The biggest challenge for any trader is to deal with the vast amount of market information, not to mention the speed at which the market moves.
Brokers such as CMC Markets have a full-on technical analysis suite that goes beyond visualising the market with detailed charts. It comes with technical indicators to help you identify trend reversals, significant price levels and trading opportunities.
Charts can provide an instant view of various assets, helping a trader to determine how an asset moves in the market. The main purpose of charts, however, is to enhance a trader’s already solid trading background.
To understand how charts work in their favour, a trader must know the basics of the different chart types, and how it suits their analytical skills, situational awareness, response time and trading precision.
Knowing the different chart types
Charting is typically categorised into three types, each of which has its strengths and fulfils the unique needs of traders.
A line-style chart displays close prices connected with straight lines. This is useful if you are focused on just a few assets, as you are monitoring the upwards and downwards trend. More importantly, line charts give you a precise look at the closing price, helping traders who value closing price as a strong trade indicator.
Bar charts are hugely popular with traders due to the wide range of information it presents. This includes the high, low, open and close to visualise the price plot for each period. The vertical bar shows the high and low range, with the top being the high point, while the horizontal bar looks at the open and close price. Bar charts are flexible, allowing traders to customise the indicators based on their analytical needs.
Candlesticks are easy to read because of the way the open and the close are displayed. This makes it a popular choice among traders who want to see the opening price, closing price, high price, and low price at a glance.
As its name implies, the chart is visualised as a candle composed of two lines indicating the high and low, while the body represents the open and close. Depending on the timeframe, it allows you to see how the body, i.e. the open and close price moves along the high and low of the period.
Making sense of the charts
Charts are powerful tools if it’s accompanied by an extensive price history across decades. More importantly, one has to know how to read the charts and use it as basis for technical analysis. This comes in the form of identifying trend reversals, price levels, and many more. Comparing price actions across various timeframes is essential to help with price predictions.
CMC Markets, for example, covers the price history for a wide range of assets across 20 years. Such detailed data is crucial for traders to perform price projection and determine their trading strategy.
Reading the chart, however, is just the first step. It’s also essential for traders to analyse and draw conclusions by, well, drawing on the charts to determine resistance and support levels. Moreover, leaving notes besides charts is a common practice for traders, as it provides a side-by-side reference and context to your trading plan.
The process is seemingly manual but brokers such as CMC Markets have an integrated solution that keeps your technical analysis in one simple layout. The trading platform’s charting features offer customisable charts and over 35 drawing tools, allowing a trader to go deep and perform instant technical analysis within the dashboard.
Likewise, CMC Markets’ technical analysis suite helps to analyse price points for pattern recognition. In doing so, the platform performs price projection for pre-determined assets, giving you an estimate of how an asset’s position might move over time.
An evolving trade
In the trading circle, charting is not a game changer. How charting is incorporated with technology, however, is another story.
Regardless of how much charting can help to visualise numbers and reduce the data crunch, traders will have to manage multiple charts across assets as a time.
CMC Markets makes that simpler with a module linking feature. This allows a trader to interchange products for quick comparisons, where the charts are instantly updated to reflect the changed product. The benefit behind this is an almost instant reference for a trader to decide if one product would fare better in a given time period.
Trading happens in real-time, which also means the time it takes for you to perform a technical analysis with a chart to actually placing a trade needs to be as short as possible. Case in point - CMC Market’s trading platform affords that instant access, even allowing you to open an order ticket and trade directly from its charts.
Get familiar with charting
It’s undeniable that charting is an essential tool for traders. But reading and actually practicing are two totally different matters.
To get a better understanding of how charting works, you’ll need to go through the actual process of choosing the right chart, identifying technical indicators correctly and performing technical analysis.
Demo accounts give you that option to practice risk-free and familiarise yourself with various trading features. CMC Markets’ demo account offers exactly that, an opportunity to test award-winning charting features. On top of that, CMC Markets’ extensive charting suite has features that helps you along the way.
Remember, practice makes perfect. Once you’re accustomed to the features, you’ll discover more trading opportunities along the way.
This article is sponsored by CMC Markets Singapore Pte Ltd (Reg. No. / UEN: 200605050E) (“CMC”). All views, opinions and recommendations expressed in the article are the independent opinion of GoBear and do not in any way reflect the views, opinions, endorsements or recommendations, of CMC. Information is for educational purposes only and does not constitute any form of investment advice nor an offer or solicitation to invest in any financial instrument. No responsibility is accepted by CMC for any loss or damage arising in any way (including due to negligence) from anyone acting or refraining from acting as a result of this information or material.