Stock Charts For Dummies book cover

Stock Charts For Dummies

Published: February 21, 2018

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.

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.

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. Here, you get the basics on chart attributes, overlays, indicators, trading techniques, and journaling tips.

Articles From The Book

35 results

Stocks Articles

Setting Up a Specialized Monthly Area Stock Chart

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. Monthly charts are not reviewed that often, so contrasting this ChartStyle to a daily candlestick chart can be refreshing and generate new perspectives.

Once you have chosen your indicators, you can review them by looking back on the chart to see whether they help you find important trend changes in advance or at least in a timely manner. Try using the RSI indicator and notice the support/resistance levels in bull and bear markets.

Large institutional investors may use monthly charts for their guiding principles in the current portfolio. For individual investors, monthly charts are a great support tool for buying stocks and building confidence based on longer-term indicators.

The image below shows a monthly area chart for copper stock ($COPPER). These three questions are valuable. Where is the price on the right-hand side? Have any trends been broken? Where are the horizontal support/resistance levels? Copper has moved from the 50 percent level on the scale to about three-fourths of the way up. It has also broken a five-year downtrend. The 12-month moving average does a great job of highlighting bull and bear markets. Copper was used to show that you can view industrial metals and other commodities on the
StockCharts.com website. Here are some details to pick up from the chart above:
  • The relative strength of copper compared to the S&P 500 ($SPX) is above two-year highs, so this chart is outperforming the $SPX. That is a strong first signal.
  • The accumulation/distribution line is at new highs, so that is very bullish.
  • The volume is very, very strong and supportive.
  • The percentage price oscillator (PPO) is above zero, and a major momentum downtrend has been broken. This is clearly a bullish tone for the metal.
With this very positive monthly perspective, investing in copper-related mining stocks or construction equipment used in mining has a strong supportive backdrop. If the relative strength started to underperform or the price moved below the 12-month moving average, that would give you different signals that you could use for your portfolio management. The image below shows the settings for the monthly area chart. In particular, note that the chart was set to a monthly period over a range of 18 years. A simple moving average was used and set the color to green so you can easily see it against the black price line. The following indicators were also set: Price, Accum/Distribution line, Volume, and Pct Price Oscillator (PPO). Save your monthly line chart ChartStyle.

You may prefer the line chart to the area chart or vice versa. You may find you want to do more with area charts because you find them easier to use. Try using daily or weekly settings on area charts to see whether doing so helps you get around the detail of candlestick and bar charts.

Stocks Articles

Following Technical Clues to Help Manage Your Trades

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. Expect bounces off some support.
  • The stock goes low enough to get oversold readings on technical indicators, such as the relative strength index or RSI (30 or 40) or stochastics below 20. These are typical buy areas.
  • Trend lines are broken. Look for ways to hold strong stocks that may be consolidating. Selling some on a break can lock in profits.
  • Price breaks below where the price has bounced up from before. After multiple attempts to hold above the previous lows, a lower low can be a clue that the support is fading. Rising stocks don’t make lower lows. One low might be an exception for a few weeks, but uptrends have a series of rising lows.
  • The stock starts to make new 52-week lows.
The chart below shows Amazon (AMZN), which is one of the world’s juggernaut companies. By dominating one particular space so well, Amazon has been crushing everyone in its path. But Amazon investors have ridden some massive swings. For example, in 2014 the Federal Reserve had lots of stimulus going on to help the economy heal from the financial crisis. The market was roaring higher until the oil business struggled in late 2014. But Amazon was a dog all year, after years of running higher. The chart above shows a few big things:
  • Moving averages: As an investor, what will you hold through? Working from the left to the right, Amazon was finding support at the 10-week moving average. As 2014 started, Amazon had a big down week that wiped out about ten weeks of price gains. The stock dropped into May, losing $125/share before finding support at $285, which was the January high of 2013.
  • Indicators bounce from oversold levels: The stock continued to wobble and make lower highs all year. The support level of $284 held, but investors holding the stock throughout the year were staring at losses for the year of 30 percent. Was Amazon’s long-term top finally here?
  • Trend lines: Use previous run-ups in the stock price to find a similar slope for trend lines. A short, sudden burst is not a good trend line slope, but one with a reasonable angle (45 degrees or so) is a better place to watch for support.
  • Price support and new 52-week lows: All the moving averages collapsed together in 2014, and Amazon struggled. Heading into 2015, Amazon risked gapping to new 52-week lows. Great stocks make higher 52-week highs, not lower 52-week lows. On the January 2015 earnings call, the stock roared! It broke above all three moving averages; the moving averages were in a bullish alignment, with the short-, then medium-, and then long-term averages above each other; and Amazon more than doubled in price in one year. Price support held!

Stocks Articles

Selling Stocks Before They Head South

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. If you can keep that discipline to keep losses very small, you will make a lot of money in the markets. Some very profitable traders lose money on 40 to 60 percent of their trades. Some settings on StockCharts.com can help with exiting a stock based on technical indicators.

Chandelier exits

Chandelier exits can help indecisive investors. Chandelier exits are placed as a line on the chart that is a maximum retracement off the most recent high. As the price moves up, so does the line. Eventually the stock drops in price and kicks you out. Put the overlay on the chart by selecting Chandelier Exits from the Overlays drop-down menu and click Update. Check to see whether the price goes below the line too often. If so, increase the range from 3.0 to 4.0 until the line fits the stock better. Two chandelier exit lines are shown on the panel with the price bars. The Cabot Oil and Gas (COG) weekly chart is shown above. The chandelier exit set at 3.0 would have kicked you out in October 2016, but the setting of 4.0 would have been okay. In that example, changing 3.0 to 4.0, which is four times the average range for a week rather than three times the average range, works better as a setting. However, for most of the downside moves in 2014 and 2015, getting out earlier would have been better.

You may need to eliminate the other moving averages to clearly see the chandelier exit line on your charts, but the actual price level is shown on the legend.

Parabolic stop and reverse

Parabolic stop and reverse, commonly called parabolic SAR, moves the stop closer to the price as the advance continues. Eventually, the stop is very close to the price and kicks a sell signal. Parabolic SAR is found in the Overlays area. The image below shows the default settings for the parabolic SAR. The parabolic SAR dot will move up above the highest price recently recorded and move the system to a sell signal. This system works well on strong trending stocks, but is terrible during sideways consolidations. For Cabot Oil and Gas, the parabolic SAR was on a sell signal for most of 2015. In 2016, it switched to a very profitable buy signal. However, from June 2016 through most of 2017, the sideways chop was an awful solution, with every trade losing money as a buy-high, sell-low trade. In a full parabolic SAR system, you would short the stock when the system reversed, until the price of the stop was hit to the upside, telling you to go long on the stock. In this example, shorting the stock would have only doubled your losses in the sideways chop. You don’t have to short the stock; you can just sell the shares you have and wait for another buy signal to trigger on the parabolic SAR or use other indicators you like. For this reason, use the parabolic SAR on strong trending stocks only.

The best rule in trading is to have a stop somewhere. If you don’t have a stop, a downturn can really hurt your year-end profit despite all the wins you may have racked up during the year.