Chartism: How to interpret financial graphs? 📊

✔️ Information reviewed and updated in February 2024 by Pedro Martínez González

One of the keys to being successful in finance is chartism. And it is that statistics and numbers can be your best ally if you know how to read them and how to draw conclusions from them. At least that's the way the experts put it.

In order to better understand financial graphs, you must learn how to interpret them, since these do not usually come in the form of conclusions. That is why here we will tell you how interpret financial graphs which will help you improve your decisions when investing in the stock market or Trading.

✨ Chartism

Coming from the English word, Chart, Chartism could be said to is the technique or a method to interpret graphs and squares with financial data. While that word is not very common, at least not in popular slang, it is a solid and well-defined method.

This graphical analysis system allows you to interpret and know the prices of an asset accurately. The use of chartism allows us to accurately analyze the swing of the markets, as well as the way in which assets change in value.



✨ Point one to analyze: Trends

The trend is a downward or upward movement which joins at least two points and it can serve as a reference, this according to Melchor Armenta, expert in Trading. Within the trends we find 3 main types:

  • Upward or bullish trend: This trend refers to the rise in prices of an asset on a sustained basis for a certain period of time. Basically it is a line that rises and rises steadily, that is why it is known as bullish or bullish, because it is going up.
  • Bearish trend: Similar to the previous trend, but in reverse, the downtrend is about a trend that decreases in value steadily and steadily. In short, a trend that falls or declines as time passes and the asset depreciates.
  • Neutral or lateral trend: Although encountering this trend is rare, at least not in the world of more volatile stocks and assets, it is important to understand its concept. Basically it is a trend where the value of the asset is maintained, that is, it does not rise or fall.

✨ Point two to analyze: Chartist figures

One of the keys to analyzing charts and graphs is patterns. Chartist figures or patterns are a series of figures that are formed in the same graphs, as an effect of trends. Their analysis is essential to learn more about changes in the market, for this they have been grouped into these categories:

  • Trend changes: These formations are manifested when there is a change in a trend, for example, if it rises, falls and suddenly rises again. The most common patterns are: Double Top, Double Bottom, Triple Top, Triple Bottom, Reversal Day, Island Reversal, Shoulder - Head - Shoulder, Diamond and Shoulder - Head - Inverted Shoulder, etc.
  • Continuity or trend consolidation: Unlike the previous ones, which appear in upward or downward trends, these figures appear during neutral or lateral trends. These tell us that lInvestors are accepting the price of assets favorably.

While analyzing the figures can give you a good overview, this does not guarantee successful interpretation and prediction. That is why you should take into account some technical analysis tools such as:

  • Support and resistance levels of a security: These indicators are the highs and lows in which quotes are supported prior to continuing or changing the direction of a trend.
  • Technical indicators: These data are mathematical formulas which are based on historical active data. The most common indicators are: Momentum (MOM), MACD (Moving Average Convergence / Divergence), Ichimoku and Heikin-Ashi.
  • Volume: These volumes are the number of contracts which rectify or reject the reliability of a figure.

Finally, we have setbacks which are movements contrary to the natural trend of an asset, either up or down.

✨ Point three to analyze: Types of financial graphs

You should also know that one of the keys to success in chartism is learning to read charts. To do this, you must know what are the main types of charts used in the world of finance.

  • Line chart: This is the simplest chart of all, since it is a line which joins the current closing price with the next closing price of an asset. Its main advantage is that it is very simple, visual and also very easy to interpret.
  • Bar graphic: More complete than the previous graph, the bar graph shows the opening and closing prices, as well as the highs and lows of the price in a given period of time. Each of the bars in the graph They represent the price of the asset in the selected period of time.
  • Japanese candlestick chart or Candle Sticks: The whole body (candle) of this chart represents the difference between the opening and closing values. The small lines on each candle, known as wicks, represent the high and low prices for the day on the asset in question.

✨ Tips to improve your chartism

If what you want is to learn to read financial graphs and data tables efficiently, you must take into account some points. The first is that practice makes perfect, that is, in order to become an expert you must practice a lot.

The second is that theory is a fundamental part of all practice, that is why you must have the appropriate knowledge. We recommend that you read books and research everything you can in order to develop your ability to read and interpret this type of data much more efficiently.


About the Author: Pedro Martinez Gonzalez

I'll tell you a little about myself! I am a financial analyst and economist with a master's degree in finance.
About my studies: I studied at the University of Salamanca for a Degree in Economics and then did a Master's in Finance in Madrid.
Do you want more information? You can read more about me here in my biography.

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