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Stock Market Operations

Notes longer the trend, the more important it is; for example, a one-month trend is not as significant
as a five-year trend.

10.6.5 Trendlines

A trendline is a simple charting technique that adds a line to a chart to represent the trend in the
market or a stock. Drawing a trendline is as simple as drawing a straight line that follows a
general trend. These lines are used to clearly show the trend and are also used in the identification
of trend reversals.

10.6.6 Volume and Chart Patterns

The other use of volume is to confirm chart patterns. Patterns such as head and shoulders,
triangles, flags and other price patterns can be confirmed with volume, a process which we’ll
describe in more detail later in this tutorial. In most chart patterns, there are several pivotal
points that are vital to what the chart is able to convey to chartists. Basically, if the volume is not
there to confirm the pivotal moments of a chart pattern, the quality of the signal formed by the
pattern is weakened.
10.6.7 Volume Precedes Price

Another important idea in technical analysis is that price is preceded by volume. Volume is
closely monitored by technicians and chartists to form ideas on upcoming trend reversals. If
volume is starting to decrease in an uptrend, it is usually a sign that the upward run is about to
end.
Now that we have a better understanding of some of the important factors of technical analysis,
we can move on to charts, which help to identify trading opportunities in prices movements.

10.6.8 Technical Analysis: Chart Types

One school of though led by William L. Jiler developed a comprehensive technique called
“Chart Reading”. Charts provide visual assistance detecting the emerging and changing patterns
and changing patterns of price behaviour. Technical analysts use following basic types of charts.
 Line Charts

 Bar Charts
 Point and Figure Charts
 Candle Stick Charts

Line Charts

The most basic of the four charts is the line chart because it represents only the closing prices
over a set period of time. The line is formed by connecting the closing prices over the time
frame. Line charts do not provide visual information of the trading range for the individual
points such as the high, low and opening prices. However, the closing price is often considered
to be the most important price in stock data compared to the high and low for the day and this
is why it is the only value used in line charts.

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