The Two Major Charts Technical Analysts Use:
Bar charts are some of the most popular type of charts used in technical analysis. They display the open, close, daily high and daily low (for whatever time period you prefer to use). All charts can be employed for anytime dimension. The daily chart which is the most popular time period is used to study price trends for the past six months. For longer range trend analysis going back five or ten years, weekly and monthly charts are most useful. Intraday charts can be plotted for periods as short as one minute for day traders. Each time period is a vertical line, the top of the vertical line indicates the highest price of the commodity traded during your selected time period, and the bottom represents the lowest price. The closing price is displayed on the right side of the bar and the opening price is shown on the left side of the bar. A single bar represents one time period of trading.
The advantage of using a bar chart over a straight line graph is that it shows the high, low, open and close for each particular time period (i.e. usually daily).
Candlestick charts have been around for hundreds of years. They are often referred to as "Japanese Candles" because the Japanese would use them to analyze the price of rice contracts.
Similar to a bar chart, candlestick charts also display the open, close, daily high and daily low. The difference is the use of color to show if the commodity was up or down over the time period.
Using Support and resistance in technical analysis:
Support and resistance are price levels at which movement should stop and reverse direction. Think of Support/Resistance (S/R) as levels that act as a floor or a ceiling to future price movements.
Support is a price level below the current market price at which buying interest should be able to overcome selling pressure and thus keep the price from going any lower.
Resistance is a price level above the current market price at which selling pressure should be strong enough to overcome buying pressure and thus keep the price from going any higher.
One of two things can happen when a futures contract price approaches a support/resistance level. The first is it can act as a reversal point in-other-words when futures price drops to a support level, it will go back up. The other possibility is that S/R level reverse roles once they are penetrated. For example, when the market price falls below a support level, that former support level will then become a resistance level when the market later trades back up to that level.
If you would like a better understanding of technical analysis or trading the futures markets, I recommend you contact me directly (Jeffrey S. Friedman, Senior Commodities Broker, at RJO Futures). I can be reached at Phone: 800-826-4124 or 312-373-5133.
Series 3 Licensed
Senior Commodities Broker
Jeffrey began his career as a clerk and then became a spread research analyst for a group of independent floor traders. In 1981 he became a member of the Chicago Board of Trade, working both as a local and as a floor broker, trading for his own account and filling customer orders. Jeffrey was a Chicago Board of Trade Member for over ten years and a member of the MidAm Commodity Exchange for eight years..... Read More