Stock Charts

For a technical analyst, stock charts are the rough equivalent of blueprints for the builder. Almost all technical analysis is performed on a stock chart.

What does a chart represent? Generally, it represents the price movement or price action of the the stock, ETF or index over a defined period of time. Charts can represent a period of minutes, hours, days, weeks, months and years. They can enable a trader or investor to see trends and identify patterns over any of these time periods.

When performing technical analysis, I prefer charts that are interactive. By that, I mean that I like to use a charting tool that allows me to draw basic lines, boxes, circles, and annotate with text. Bonus features include the ability to draw more complex analysis components like fibonacci retracements.

Different technical analysts have different preferences for how price movement is represented. The two primary representations are candlesticks and bars.

For those new to technical analysis, I'll take a quick moment to show examples of each.

Bar Charts

Bar charts typically are designed to show three key things. They will show the opening price, the closing price and the range of price movement for Stock Charts - Bar OHLCthe defined period.

In this example, the opening price and the low of the period are the same. What I can tell from this immediately is that the price closed up on the period but slightly off the highs.

Until the introduction of candlestick charting, this was the most commonly used method of analyzing the price movement.

Candlestick charts

In reality, candlestick representation isn't that different than the bar charts. We can see all of the things that bar charts show. However, Stock Charts - Candlesticksome patterns become more apparent I think with candlesticks.

In this example, I'm using the same exact chart but with a candlestick representation. We can see that this representation shows all of the same things.

In addition, candlestick charts can make it easier to quickly identify the result of the period.

Stock Charts - Additional Candlestick Example
Candlestick charts give a quick indication of a higher close or lower close as this example illustrates.

This can quickly give you a picture of who is in control over that period and the strength of those in control.

How I use charts

I use charts to identify three key things.

  1. What the trend of the stock, ETF or index is. Trend can be identified with either a drawn trend line connecting higher lows or lower highs. In addition moving averages can be added to provide a picture of the trend. The simple analysis is... does the moving average point up, down or sideways.
  2. Where support and resistance are. I've talked a little about this on the technical analysis page. Using the drawing tools, I can quickly draw in horizontal support and resistance.
  3. Likely next moves (i.e. breakouts, bounces, etc). The analysis of this comes from simply observing the price behavior relative to my drawn items. Is the bouncing off support or resistance levels? Is the price breaking through a support or resistance level?

I addition, I take advantage of some of the annotation features to make notes on the chart regarding my entry, planned exits and so forth. I found this benefits me as I'm reviewing my charts. All I have to do is look at current price action and review my exit notes to determine if action is needed. Having a charting tool that allows me to save my annotations so I can review them later is highly important to me.

Using studies in stock charts

I mention on other pages that I use moving averages, MACD and Stochastic studies. The ability to apply these to a chart and configure them to suit my needs is very important. I generally don't use them as primary indicators (i.e. they don't tell me when to get in or out) but as confirming indicators.

Stock Chart Example
Here is an example of a chart with all my studies turned on. I don't often use all of them.

Of course, your mileage may vary. You may have other studies that are helpful to you. You may have other preferences for moving averages. Whatever the case, make sure you find a charting solution that offers you the flexibility to do the things I've outlined. For me, stock charts are an integral part of the process of trading.

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