Chart Basics Using Bars, Point & Figure and Candlesticks

by Richard Evans

Technical analysis today comes to us under various and sundry names and disguises, ranging from the granddaddy of technical analysis, Dow’s theory, to a plethora of more exotic forms. However, in its simplest form, technical analysis is the study of the market action itself.

I usually think of technical analysis as “transactions analysis,” a more descriptive and less threatening term than “technical” analysis to many investors. In any case, technicians believe that price action, plus volume in many cases, accurately represents the demand and supply for stocks, and (this is the critical leap of faith), that correct appraisal of the supply and demand factors as represented by price and volume patterns can allow technicians to make reasonably accurate forecasts of future price activity.

The original tool of technical analysis was tape reading, which allowed investors to “read” demand and supply by seeing which stocks were moving, how active they were, and whether they were stronger or weaker relative to others. The basic purpose of tape reading was to answer the question: How is a stock “acting”?

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