The ability to read charts is one of the spread betting basics which every trader in this market should know. Knowing how to red charts for opportunities is the basis of technical analysis when aiming to perform successful spread bets. Charts display price information and come in several forms:
- Line charts
- Open, High, Low and Close (OHLC) charts
- Candlestick charts
- Kagi charts
- Renko charts.
The most commonly used charts are the candlestick charts. Candlesticks show the high, low, closing and opening prices for each time period under review. Spread betting basics will also include the ability to decipher these prices on a chart.
A look at a typical chart will show price action in the form of candlesticks. However, this display will not make much sense and that is why it is a spread betting basic skill to be able to harness the information on the charts properly in order to discern trading opportunities. This is why you need to know how to read charts as one of the most important spread betting basics skills.
When reading charts, what exactly is being sought?
- Identification of chart patterns
- Candlestick patterns
- Areas of support or resistance
These four items are the information that traders can use to pick out spread betting opportunities. To be able to read charts for technical analysis, a spread bettor needs to:
- Open the charts for the appropriate asset and adjust the settings
- Know how to attach tools and indicators
- Use the tools and indicators to decipher a trend
- Use the information to spread bet the chosen asset
A Classical Example of How to Read a Chart
Let us assume we want to spread bet on the EUR/USD, and we need to read the charts for information which will enable us do so. How can we go about it?
- Open the Chart
The first step is to open the chart of the EUR/USD. On your broker platform, you can easily do this. After opening the chart, you can also set the periodicity of the charts. For instance, if you want to spread bet on the hourly charts so you can use an hourly trading strategy, then you need to set your chart to H1.
- Analyse the price action
Depending on the broker you use, there are several ways to analyse the price action. Typically, you will want to know the following:
- Is price at a support or resistance? Is there a bounce or reversal at these points?
- Is there a chart pattern?
- Does a candlestick pattern exist on the charts?
For instance, you can use the line tool to draw a horizontal or diagonal line across price lows or price highs to look for possible support or resistance areas respectively. Some brokers also feature charting tools such as price projection tools which can scan the charts for chart patterns or candlestick setups on short period charts or longer time frame charts. Chart patterns include triangles, wedges, flags, pennants, etc. These can all point to future price movements in terms of renewed trends or trend reversals.
As a spread bettor, you can use any of the line tools, drawing tools and price projection tools to pick out possible trade opportunities.
It would be dreary business to have to keep adding tools and indicators to every single chart you open over and over again. Now you can do all this once and save the settings so that once you open a new chart, you can simply call up your customized settings and apply them to any charts you open. You can thicken lines, use different colours for better visualization or perform your own unique technical studies and save them all into your own customizable set. Different brokers will have their own unique settings to allow you customize your technical studies.
These days, spread bettors can get a lot of help with their chart reading from the various tools that spread betting brokers provide on their platforms. So the emphasis now is to know how these tools work and how they can be deployed, as well as what end results are being sought in the market. A demo account will be of great benefit to those who want to pick up a spread betting basic skill such as chart reading.