On a candle chart each candle is made up of 4 pieces of information – The opening and closing price, along with the high and the low.
From those we get a quick and instant picture of who is in control of the market instantly.
There are hundreds of different patterns which can help us know what is likely to happen to the market following that pattern.
At this stage, the market was simply going higher and higher, but how can we determine when the trend is over and the FTSE at a risk of moving lower.
A very simple basic rule of Technical Analysis could have waned that the FTSE was going to fall and lose a lot of its value.
See the next slide to see that simple rule.
By drawing a trendline on the chart we can see if the trend is strong and intact, or if there is a break to the up trendline,
giving a potential market reversal warning.
At this stage, the market was simply going higher and higher since last May, but importantly, how can we determine if that’s about to change
By drawing a trendline on a chart we can see if the trend is healthy. We can also look at the candle charts. On this chart there are some warning reversal candles warning that the market might be about to test lower and put pressure on the trendline.
A trendline break- we can see the up trend is over and the risk is a move lower
The trendline also shows where resistance is after it has broken – look how the market fell after retesting the trendline
