When you trade, you should and should use technical analysis as the basis for making decisions to buy and sell stocks. His name is also technical analysis, meaning that most of the technicalists, you and I will tend to trade (not investment) short term, daily - weekly timeframe. For more details, please read the following post: How to Analyze a Stock.
Before you learn more about candlesticks and charts, you need to understand the basic principles of technical analysis. In the stock market, there are 3 (three) basic principles of technical analysis that form the basis for why prices move up and down. The three principles are as follows.
First. Market price discount everything (Events in the market describe everything).
The first principle wants to emphasize to you that all events can have a profound effect on stock prices. Both in terms of fundamentals, economics and other factors. All events in the market describe the reaction of all events that can affect the movement of stock prices.
Stock price movements occur because of demand and supply. So with this legal basis, if the number of offers (offers) is more than the demand (bid), then the stock price will move down and vice versa if the demand is greater than the supply, the stock price will tend to move up.
Second. Price moves in trend (Price moves with the trend).
The second principle wants to emphasize to you that stock prices will always move according to a certain trend / pattern, and the pattern of stock price movements will continue until there are signs that the trend will stop or reverse direction.
An example of the second principle, I take one share, namely WTON shares. Take a look at the WTON stock chart below.
Since trading on the stock exchange in 2014, the stock price has increased dramatically from 700 to 1,400 to the highest resistance peak (see red line). The increase in WTON's share price is due to fundamentally, WTON's financial statements have bright prospects, plus the government's program to improve the quality of infrastructure and development, which has positively impacted WTON. WTON is the only issuer that has been listed on the Exchange for the first time and has been able to enter the main board index. WTON continues to form an uptrend.
However, after the price reached the peak of 1,400 WTON instead dropped, and reversed to the price of 1.00 (see blue line). Why doesn't WTON continue its uptrend, if not for bad macro and micro news that could cause WTON to plummet. A few months after the drastic increase in WTON, Indonesia's economic growth target is far from satisfactory, the economy is falling, cement prices continue to compete and contributed to eroding WTON profits in the first quarter of 2015.
This second technical principle is trend following traders, like me, who tend to follow a stock price trend to get money. And sell when the stock will correct or there is bad news. The second principle also teaches you that: Never Fight With the Trend (never fight the trend). Because the second principle emphasizes that the stock price trend shows the attitude and psychology of market participants on a stock price. You can never win against the market, because the market is driven by so many people with different interests.
Third. History repeat itself (history will repeat itself).
The third principle wants to emphasize to you that past stock price movements will tend to occur repeatedly, so that it can be a reference for a trader to make trading decisions.
An example of this third principle is: Stock prices that have strong support (support prices are often touched), when stock prices are corrected, stock prices will tend to fall to strong support prices. That is what is called history repeat itself.
Why did this happen? This is due to market psychology, namely humans will tend to give the same reaction to the same problem, so that everything that has happened in the past, which is reflected in historical stock price movements, will tend to repeat itself in the future. Stock prices in the capital market often tend to describe patterns of price movements that tend to repeat themselves.
