What are charts are trying to tell you? What is a chart and how can you use it in making your investment decisions? Chris Tate shares his knowledge on the importance of price action and technical analysis.
Look at the chart of a company you know well. Chris recommends that you go to somewhere like Yahoo finance, and find the chart for that company and play around with the parameters.
"The market is a machine that tells me what its view is"
You'll be able to choose the type of chart whether it's a simple line chart or a candlestick. A candlestick shows the opening price, the closing price, the highest and the lowest prices. There's a lot of information embedded in that little graphic.
You can then change the time periods. Have a look at the chart on a daily, weekly and monthly basis. As Chris says if it's going top left to bottom right it's in a downward trend. That's a "don't buy" signal. If the price is going bottom left towards top right then it is trending upwards. Warning: this is not necessarily a buy signal but it gives you more confidence that you are going in the right direction
What about indicators?
All charts will come with what are called "indicators". These are tools that will give visual representations of Some of the most common are RSI, MACD, Bollinger Bands and all sorts of Moving Averages. Some chartists believe that these can help to show the best time to buy and sell shares.
Chris is not a big fan of indicators. He thinks that they blur the very simple message that the market is trying to tell him.
What is a CFD?
CFD stands for Contract For Difference. It's a way of buying and selling shares with leverage, which means that you only have to put up a fraction of the total cost of purchasing the shares. It's a way of magnifying your gains, but can your losses can be greatly amplified.
It's important to be aware of how they work. As a beginner you should avoid them absolutely. You may come across glossy advertising spruiking their opportunities but be aware of the dangers.
Chris uses them for much of his trading however he is an expert and knows what he is doing.
We just sent you an email. Please click the link in the email to confirm your subscription!