CFDs are complex financial instruments and carry a high level of risk due to leverage. A significant proportion of retail investors incur losses when trading leveraged products such as CFDs. You should carefully consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your capital.
A chartist is a trader or analyst who bases their decisions on reading price charts. They study historical patterns, support and resistance levels, and candlestick patterns to anticipate future movements. They are also known as technical analysts, although chartism focuses specifically on the visual interpretation of the chart.
While a fundamental analyst examines financial statements, ratios, and economic data, a chartist works exclusively with the price and volume represented on the chart. Their premise is that all available information is already reflected in price movements. They do not need to know the company’s fundamentals to trade.
Chart analysis in trading relies on a set of visual and mathematical tools. Each one extracts different information from the same chart.
Patterns such as triangles, head-and-shoulders, ceiling heads, or double bottoms signal possible trend reversals or continuations. The analyst identifies them visually on the candlestick chart.
Moving averages, RSI, MACD, and Bollinger Bands complement the visual analysis. They measure the strength, direction, and potential exhaustion of the current trend.
The analysis process follows a logical sequence.
Choose the time frame. Daily, weekly, or intraday, depending on the strategy.
Identify the trend. Bullish, bearish, or sideways by observing highs and lows.
Mark key levels. Support and resistance levels where the price has reacted before.
Look for patterns or signals. Candlestick patterns or indicator crossovers that suggest an entry point.
Volume confirmation reinforces any signal. A pattern without volume is less reliable.
An analyst observes that a stock bounced three times off $45 (support) and was rejected twice at $55 (resistance). When the price breaks above $55 on high volume, it is interpreted as a buy signal. Enter at $56 with a stop at $53 and a target at $65.
Beginner chartists make mistakes that distort their reading of the market.
Seeing patterns where none exist due to overanalyzing.
Ignoring volume as confirmation of the signal.
Failing to combine time frames to provide context.
A pattern on a 5-minute chart loses relevance if the daily chart shows the opposite direction.
Chart analysis provides concrete advantages to traders.
Define entry and exit points based on visual criteria.
Identify levels where the price tends to react.
Make quick decisions without relying on financial reports.
A chartist reads charts to make trading decisions. They use price patterns, technical indicators, and volume analysis. Their strength lies in the speed of analysis. Their weakness is ignoring the fundamentals that can move the price independently of the chart.