The importance of chart patterns and technical analysis in Stock Market trading

The importance of chart patterns and technical analysis in Stock Market trading

It is an irrefutable fact that the share market is a volatile place to put one’s hard earned money in. However its unpredictability has not been able to deter many people from trying their lucks. It is also true that some people have hit the jackpot by investing smartly. Stock Trading can prove to be profitable if one masters the trick to invest wisely.

In the present age, relying on a single source of income may not be enough for some people. The cost of living and prices of many essential commodities are on the rise. Some look at the stock market as a second income source. Some people might also feel that the money they will get after retirement may not be enough to ensure a worry free life. They need extra money for living a relaxed and peaceful life and may also feel like indulging in luxuries like travels and buying properties.

As the future of social security has become somewhat uncertain many people are worried about the life post retirement. Then there are the wealthy lots who love to see their wealth grow by leaps and bounds. They also choose share market to invest their money. The stock market gives one the benefit of compound interest. One need not be particularly qualified to invest in the stock market. Both a large enterprise and an average middle class person can invest in stocks.

However the two things people need to be aware about before investing in stock market are Technical Analysis and chart patterns. As a matter of fact, the former deals with price patterns and a stocks trend. When used properly, this can prove to be an ideal indicator for stock investors. It is based on 4 major assumptions. It assumes by default that people will continue to make similar investing choices.

Technical analysis is more or less based on the theory of resistance and support. The expected price upheavals of shares are determined by imaginary bottoms and tops of stocks. Technical analysis has been derived from several years of price movement trend observations. The initial form of technical trading can be traced back to the 18th century. A person who played a significant role in developing modern technical trading is Charles Dow. With time the scope of the study has expanded considerably.

Another important aspect of stock trading is Chart patterns. By identifying and using patterns properly an investor can determine the time to get in and out of a particular trade. There exist trend continuation patterns and trend reversal patterns. For instance, an important reversal pattern is Double Tops. It can actually help an investor in understanding when a stock is likely to go down.

On the contrary, the Double bottoms are used to determine the time a trend is likely to alter. The stock market veterans use it to get in a trade at a time when the stock bottom is down. One can earn a handsome profit by making use of this strategy. For more information on this topic one can see the site stocks-simplified.com.

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Shaun is author of this article on Technical Analysis. Find more information about Chart Patterns here.

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