Charting

Charting is designed to give traders an indication of the best time to buy and sell a particular share whether you are looking for a quick killing or to take advantage of a long term trend.

Chartists use trend lines to link the peaks or troughs shown on a share price chart. These trendlines show in which overall direction prices are moving.

In the simplest form an upward trend occurs when share price peaks are higher than previous peaks. And a downward trend occurs when share price troughs are lower than previous troughs.

Lines can be drawn parallel to trendlines, to help outline what are called channels. Channels are pipes through which prices move as they zigzag along a trendline.

A trendline or channel develops if prices are consistently rising or falling over time. But sometimes a third pattern develops with the channel moving sideways. This is where the share price trades within an upper and lower range.

In any of the cases above a share price breaks through a trendline then it could signal that the trend has changed.

The length of time you are looking at depends on your investment horizon.

There are several key rules when looking at charting:

• The higher the trading volume, the greater the significance of a price movement.

  A rising trend carries more weight if it also coincides with a rise in the volume of shares that have been purchased, and a falling trends has more significance if it relates to heavy selling volumes.

• The longer the trend the stronger it is.

  Day to day patterns and trends are likely to be less reliable than examining longer term trends from share price and volume figures.