This tutorial article explains the basic concepts of technical analysis and stock market charts for beginners who want to start trading.
For many people who wants to start trading in stock market, the first question is always about where to begin. Before you start trading, you need to have a demat account, MeroShare, and a broker trading account. After that, you must learn how to look at charts to understand how market prices are moving. But beginners can get confused because they do not know where to view charts or what different things on the chart mean. That is why it is necessary to understand the very basic things about charts first.
What Is a Stock Market Chart?
A chart is simply a way to make market data easy to understand. Every day, data about a stock opening price, how high it went, how low it fell, and its closing price is collected. If we just look at these numbers, it looks like a long confusing list of data. But when we put this same data into a graph, we can easily see the movement, direction, and changes in the market. This is what we call a chart.
Different Types of Charts
The most basic type of chart is the line chart. In this chart, we connect the closing price of each time period with a line. If we look at a daily chart, it connects the closing price of each day. For weekly charts, it connects the closing price of each week, and monthly charts do the same for each month. This gives us a simple picture of if the market is going up or down in general.
Next is the bar chart. This chart shows four important prices which are open, high, low, and close. With just one single bar, we can see where the market started, how high it went, how low it fell, and where it closed in that specific time period. Usually, a green bar means the closing price is higher than the opening price, and a red bar means the closing price is lower than the opening price.
Understanding Volume and Time Frames
At the bottom of the chart, you can see another important thing called volume. Volume tells us how many shares of a company were traded. However, in the NEPSE index chart, it shows the total turnover money instead of share quantity. This help us to understand how much trading activity is happening in the market.
We can also choose different time periods on a chart, which we call time frames. You can use daily charts to see one day of market movement, weekly charts for weekly movements, and monthly charts to see the long term situation. Traders use different time frames according to the analysis they want to do.
Finding Companies and Using Drawing Tools
It is very easy to find companies on a chart. If you know the name or symbol of the company, you can search it directly to view its chart. You can also select companies by their sectors. For example, you can look at banking, development bank, hydropower, or finance sectors separately to see which company is rising and which is falling.
Charts also have different drawing tools. By using these tools, we can find trend lines, channels, and support-resistance levels. If needed, we can draw lines at certain price levels, measure time distance, or mark special parts of the chart. These tools become more important as you keep learning technical analysis.
The Popular Candlestick Chart
Candlestick chart is one of the most used charts in the stock market. Just like a bar chart, one candle shows the four important prices of open, high, low, and close. But its special feature is that it shows short term market movements in a very simple and clear way.
The market does not always move in a straight line. Sometimes it goes up, and sometimes it goes down. We can understand this main movement of the market in two parts, which are upward move and downward move. Even when the market is going up, it can fall a little in the middle. When it is going down, it can also rise a little. The combination of these small and big movements creates a market trend.
So, in the beginning of technical analysis, understanding which direction the market is going is very important. After knowing if the market is in an upward trend or a downward trend, we can look at other chart patterns and signals.
Signals and Managing Risk
Candlesticks can give us signals about possible changes in the market. For example, if the market has been falling for a long time and a bullish reversal candle is formed and confirmed, the chance of the market going up increases. But we cannot say the market will surely go up or down just because one candle is formed. Technical analysis is not a magic trick to predict the future, it is just a tool to understand probabilities.
This is the most important thing in trading. There is always risk even when you trade by looking at charts. That is why it is necessary to wait for confirmation and manage your risk instead of rushing to buy or sell stocks as soon as you see a signal. There is never a hundred percent guarantee in the market. The main goal is to reduce risk as much as possible and increase the chance of making a successful decision.
Psychology and Step by Step Learning
To understand why the market goes up or down, we must understand basic market behavior along with the charts. Simply, when demand increases in the market, the price goes up, and when selling pressure increases, the price comes down. Investors fear and greed also have a big effect on market demand and supply. If we can understand the psychology behind the price movements shown on the chart, our trading decisions will become much better.
In the end, learning trading in the stock market is not about knowing everything in a single day. It is a step-by-step process that starts with demat, MeroShare, and trading accounts, then opening charts, understanding line, bar, and candlestick charts, identifying upward and downward movements, and slowly learning trends, chart patterns, and other technical tools. It is best to go to complex technical analysis only after understanding the basic things well. Once you learn like this, looking at charts will not just show you random lines and candles, but you will understand what those lines are trying to tell you about the market.
AI Disclaimer: This article was originally published on https://bajarkochirfar.com. It has been translated with the help of AI. For the best understanding and accurate facts, we recommend reading the original Nepali version.
