Ever looked at the chart of a stock or commodity? Most likely, you have. Just about everyone who has ever analyzed a security takes a look at the price movements of the past month, quarter, year, etc.
For many analysts, the chart of a security is the starting point for all future analysis. Even staunch critics of technical analysis use charts to some extent. And for good reason: charts can provide a lot of information in a small amount of time.
Taking a look at the five-year chart of a company, you can quickly determine how well shareholders have done over the period. Based on the movements represented on the chart, one can tell if a company's share value has grown over the period or lagged.
The chart reader also can determine the volatility of the company's shares by looking at the movements on the chart. A company whose stock exhibits very jagged up-and-down movements is clearly more volatile than a company whose stock moves relatively smoothly across time.
But this is only the tip of the iceberg in terms of how charts are used by market participants. In this tutorial, we'll introduce you to some of the more advanced uses of charts.
Analyzing Chart Patterns: Why Charts?