I promised this blog would be from the bottom up, for everyone who knows nothing to know as much as I do by the end of the year.
First, reading the chart. It’s pretty intuitive, this image is stole from google:
White or green bodies show positive closings, black or red bodies show negative closings. Not all candlesticks have bodies or shadows, because it’s easy to imagine a situation where a stock opens at price x, gets bid up, then down, and closes where it started, giving it no body.
Charts and lines that show the average trend will auto adjust based on what type of chart I want, like daily, monthly, yearly. But if I’m suppose to be looking for patterns in candlesticks, what kind of chart should I be looking at? Isn’t it possible that a pattern shows up in say a monthly chart, but disappears when looking at a weekly chart? I’m guessing that the type of chart I should be looking at depends on how long I want to be involved in a trade. For example, if I want to hold onto a stock for maybe 2-3 weeks based on how it does, 5 minute charts probably won’t do well. But are weekly charts better than monthly charts in this situation?
Q: What chart should I be using to make predictions?
Assumption 1: Well intuition tells me that if I find a pattern in a weekly chart, my predictions probably tell me something about the following weeks. I’m trying to predict the next trend, not next candlestick. Therefore I’m probably looking to trade the next month, not week.
For example in this daily chart of Google:
if I found a pattern that told me to buy because the trend is up, I’d probably hold the stock for several days, on the order of the following weeks.