Stock Charts For Dummies
Overview
The easy way to get started in stock charts
Many trading and technical analysis books focus on how to use charts to make stock trading decisions, but what about how to actually build a chart? Stock Charts For Dummies reveals the important stories charts tell, and how different parameters can impact what you see on the screen. This book will explain some of the most powerful display settings that help traders understand the information in a chart to find outperformance as its beginning.
Stock Charts for Dummies will teach
you how to build a visually appealing chart and add tools based on the type of trading or investing decision you're trying to make. It will also introduce you to the pros, cons, and best practices of using three key types of charts: Candlesticks, Bar Charts, and Line Charts.
- Build and use technical chart patterns
- Increase profits and minimize risk
- Track and identify specific trends within charts
A unique guide for beginning traders and investors, Stock Charts for Dummies will help you make sense of stock charts.
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About The Author
Greg Schnell, CMT, MFTA, specializes in intermarket and commodities analysis for StockCharts.com. He contributes market analysis commentary to several blogs that garner between 5,000 and 10,000 readers weekly.
Lita Epstein, MBA, has written more than 40 books, including Trading For Dummies, Bookkeeping For Dummies, and Reading Financial Reports For Dummies.
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stock charts for dummies
CHEAT SHEET
You can find hundreds of books on technical analysis and using stock charts to make trading and investing decisions, but if you don't know how to properly build those charts, the information in them may be garbage. Stock Charts For Dummies helps you develop your own charting style to match your own trading and investing style.
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Stocks
Many types of overlays are available to help you read your stock charts. Here are some of the basic overlays you can add to your stock charts:
Moving averages: Help you more easily spot a trend by smoothing out price action based on past prices
Horizontal line: Enables you to more easily see the top and bot
A bar chart is a stock chart type that is used for displaying price. When it is displayed in black, the price bars used today look a lot like the price charts from the business section of the newspaper. The following information goes over the structure of a price bar and different kinds of bar charts.
Price bar components
A price bar has four main components:
Open price: The price at which the stock opens (shown on the left)
High price: The highest price of the day
Low price: The lowest price of the day
Close price: The price at which the stock closed for the day (shown on the right)
These four components make up a price bar and the name is abbreviated to a chart style of OHLC Bar (OHLC is an acronym for open-high-low-close).
There are over 180 different industry groups in the U.S. stock market. At any given time, some of the groups are moving up fast, creating an uptrend, while others are being sold off, creating a downtrend. There are also groups that don’t have momentum and can quietly trade sideways without trending up or down.
Stocks
Stock charts create a frame of reference for the current price. Is the price above the previous high prices for the last year? Is the price at the lowest price of the year? Is the price wobbling within a range and not really doing anything significant?You can use the various types of charts and their tools to help you better understand market trends and make better trading and investing decisions.
The name “candlestick” was given to this type of stock chart because it has a body (or candle) for each day pictured in the chart. The chart reader can see the opening and closing stock price with a wider area in between called the body for each day with a wick strung through the body of the candle. The wicks sticking out from the candlestick bar show the extremes of the price movement throughout the day.
Stocks
Technical analysis is about getting multiple indicators confirming a directional trade. If you use ten different indicators on one stock chart, you will never place a trade because by the time they all get in agreement, the best part of the trade will be behind you. If you use too many indicators, another risk is that you will reach analysis paralysis and never place a trade.
Stocks
When you’ve made the decision to buy a stock, your next step is to look for the best entry point. Conversely, if you want to sell, you also want to look for the best exit point. Sixty-minute charts can make the decision easier for you. Volume is a key factor in these charts.
Highlighting intraday price action
The majority of the trading volume happens in the first 1.
Stocks
Daily stock charts are a useful tool. You can calculate a company’s market capitalization by multiplying the total number of shares by the current price per share, which is called market cap in most financial reporting. Companies are typically compared based on their market cap. While there is no standard or minimum/maximum in the industry, a few companies that create market indexes have created some rough measures that change over time.
Stocks
Moving averages help clarify a trend starting and finishing. The direction of the stock’s moving average is important as it signals the trend. When a moving average starts to point down, the price has moved below the moving average. This change of direction from up to sideways or down is usually a subtle clue that the trend is changing rather than just being a pullback in an uptrend.
Stocks
Managing your trades is a constant job for a good trader. You can use technical clues to help you make optimal trading decisions. After a stock has drifted sideways to down, a few key technical events happen:
The stock touches an important moving average. Some of those are the 10-week moving average, 20-week moving average, and 40-week moving average.
Stocks
In your stock adventures, you may need a custom weekly line chart. The image you see below (depicting the stock of Valero Energy, or VLO) shows an initial setup of your ChartStyle for line charts. These are the choices you need to consider:
Relative strength indicators against the rest of the market can be helpful on a weekly line chart.
Stocks
Picking the right stocks is the goal of every stock chart user. You can improve your stock picking results by tracking these key items in a journal:
Keep track of your winners and losers.
Analyze each trade to track what you did wrong and what you did right. You can use the information to repeat your successes.
Creating profits starts by having a main watch list for stocks that you continually move good setups into. Chartists have looked at a healthy list of ideas over the years. You can take advantage of this experience at StockCharts.com, where there is a scan engine that allows you to sift through thousands of stocks in order to spot opportunities you may have been missing.
What is weird price action? There’s no singular definition for weird price action when it comes to stocks, but subtle changes in the market can serve as nice clues. Here are some examples:
Large outsized candles either up or down become reference candles for future bars to compare against.
Tiny candles called dojis, where the market opens and closes at almost the same level, with very little range between the high and the low, show indecision.
Stocks
As you develop and perfect your stock charting styles, you need to make use of the information you find in the charts to help you focus on what is happening in the market. For example, charts can help you
Determine economic cycle position.
Determine position within sector rotation.
Decide which sectors are ascending.
Stocks
Personalizing your stock charts to make it easier for you to read them can improve your ability to track your portfolio and pick stocks. Here are some key attributes you want to consider:
Chart type: You must choose the type of chart you want, such as candlestick, bar, line, or area.
Period: You must choose a period for your chart.
One of the keys to successful chart reading is recognizing downtrends and uptrends soon after the trend has started, and area charts make that easy. Area charts are very clean and simple to use. Filling the space below the price really highlights the trend for the stock.The other advantage to area charts is the ability to see the big picture by extending the amount of history that is being shown.
Stocks
If an institutional investor likes the monthly setup and a hedge fund likes the weekly setup, they will both be interested in a stock. Investors trading the daily and intraday time frames are also tuning in and may find some compelling short-term signals. This merging of signals across various types of investors is very helpful.
Stocks
Candlestick charts are primarily for short-term trading decisions; longer-term traders or investors tend to use candlestick charts to pick entry and exit points. It is important to understand when candles matter most in stock buying and selling decisions; you also need to become familiar with some of the most common patterns.
Stocks
Relative strength investing looks for stocks with better price movement so an investor can outperform the market. The idea behind relative strength investing is to find stocks that are outperforming the other stocks so you actually outperform the market. If the S&P 500 is up 10 percent in a year, for example, you want to use relative strength investing strategies to outperform the index.
Stocks
Before you jump into stocks, it’s a good idea to understand the breadth of three different exchanges: the NASDAQ Stock Exchange, the New York Stock Exchange (NYSE), and the Toronto Stock Exchange (TSE).
The NASDAQ composite breadth
The NASDAQ composite ($COMPQ) is the name for all of the NASDAQ listed stocks compiled together.
Stocks
To manage your stocks, you’ll likely be looking at uptrends, downtrends, bases, and tops. However, all bases and tops can be visually altered by the charting software. This is not a negative of charting software, but it is important that you understand the scaling that the computer is doing.Charting software uses two components to scale the chart, which can create dramatic differences.
Stocks
Indicators of price movement and volume on a stock can be a helpful tool to enhance your stock chart style. Here are the key indicators to focus on:
Relative strength indicator (RSI): Shows how strongly a stock is moving in its current direction, whether up or down
Chaikin money flow (CMF): Combines price a
Selling stocks for a loss is part of technical trading. Obviously, the preference is to sell stocks when they’re winners. The worst trades are the ones that immediately reverse when you enter into them and take you to a loss position. Taking small losses rather than large losses is akin to paper cuts versus amputations.
Stocks
Focusing on strong stocks is one of the most important themes of the market. Usually those strong stocks are part of a strong sector. You have multiple methods of finding strong stocks and sectors with technical analysis.
StockCharts technical ranking (SCTR)
Performance chart using sector exchange-traded funds (ETFs)
Relative Rotation Graph (RRG) tool
All three of these tools are available if you’re a member of StockCharts.
Stocks
Area charts are just another way of displaying a line chart for stocks. They are commonly used on TV to help the viewer distinguish the price line more clearly. Area charts also offer a unique style that is different from a daily chart with candlesticks. One of the nice parts about charting is creating attractive, colorful charts that you enjoy looking at to review.
Stocks
You want to make sure you are defining your stock chart attributes. As you move your way through your stock chart, don’t forget to define the type, size, and color of price information. Chart courtesy of StockCharts.com Type, size, and color scheme settings.
Type
Type refers to the type of display for the price information.
Stocks
Volume, which measures the number of stock trades in a day, tends to be a supportive indicator. High volume at certain times can be critical for helping with price discovery. How volume is displayed is unique and not the same as other charting information.Volume can be toggled on or off by using the volume drop-down menu on the left side of the check-mark toggles.
Stocks
When you are approaching your stock charts, there are certain attributes you should pay close attention to. The first group of settings includes the time period for each bar, the dates you would like to see, and the spacing.
Period
When it comes to charts, the most popular time period for investors and swing traders is daily.
You can find hundreds of books on technical analysis and using stock charts to make trading and investing decisions, but if you don't know how to properly build those charts, the information in them may be garbage. Stock Charts For Dummies helps you develop your own charting style to match your own trading and investing style.
Stocks
Line charts communicate a stock’s price action very quickly and simply without any significant detail. One of the key benefits of line charts is that they don’t show intraday extremes that may or may not be outside a trading range.As a long-term investor, you want your price chart rising from bottom left to top right.
Stocks
You can start a chart by going to StockCharts.com, typing a stock symbol under Create a SharpChart, and clicking Go. To create an area chart, locate the Chart Attributes area in the settings panel. Using the Type drop-down menu, select Area from the list and click Update in the lower-left corner. This makes your area chart show up extremely bold, probably in black.
Stocks
In the stock market, there is a lot of discussion about sector rotation. Although it’s usually softly discussed on the business news channels, they do not present charts to allow you to see this rotation. One of the most important changes in recent years is the visualization of sector rotation using relative strength.
After you’ve determined your portfolio’s goals, you can set up personal scans and alerts to help you monitor your portfolio hourly, daily, or less frequently; the frequency depends on your goals. If you’re actively trading each day or week, you’ll check this information much more frequently than if you’re managing a longer-term portfolio.
Stocks
Daily charts show you the activity for a stock in a given day. There are some compelling reasons to look at a range of one year in a daily chart. You can see
Consolidation ranges of a few months to one year
Annual highs
Annual lows
The price trading range for the last year
Breakouts to new 52-week highs (one-year highs)
Breakdowns to new 52-week lows (one-year lows)
When a stock is moving to new one-year highs after not being at one-year highs for a long time, investors take notice that this is a changing point in time.
A line chart shows the direction of the stock’s closing price. This quickly gives the stock-chart reader a view of the price trend. A trend is established by continually lining up prices side by side and connecting the dots. Because the closing price for a stock is the most important price, the line chart connects closing prices rather than the highs from each day or the lows from each day.
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