Stock Charts For Dummies E-Book

Greg Schnell

• Herausgeber: John Wiley & Sons
• Kategorie: Fachliteratur
• Sprache: Englisch

Seitenzahl: 492

Veröffentlichungsjahr: 2018

Beschreibung

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.

Leseprobe

Stock Charts For Dummies®

Published by: John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030-5774, www.wiley.com

Copyright © 2018 by John Wiley & Sons, Inc., Hoboken, New Jersey

Published simultaneously in Canada

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Library of Congress Control Number: 2017962794

ISBN 978-1-119-43439-9 (pbk); ISBN 978-1-119-43444-3 (ebk); ISBN 978-1-119-43442-9 (ebk)

Stock Charts For Dummies® To view this book's Cheat Sheet, simply go to www.dummies.com and search for “Stock Charts For Dummies Cheat Sheet” in the Search box.

Table of Contents

Cover

Introduction

About This Book

Foolish Assumptions

Icons Used in This Book

Beyond the Book

Where to Go from Here

Part 1: Getting Started with Stock Charts

Chapter 1: Brushing Up on Stock Charting Basics

Minimizing the Emotional Roller Coaster of Investing

Viewing Stocks from Varying Perspectives

Discovering All the Tools You Can Use with Your Charts

Getting Organized with Your Charts

Customizing Your Charts

Putting Everything Together

Chapter 2: Using Charts to Minimize Your Emotional Roller Coaster

Getting Ready for the Emotions of Owning a Stock

Understanding a few market basics

News noise

Changes inside a company

Institutional investors

Leveling the playing field

Tracking institutional investors

Studying pressures on stock prices

Building a Chart to Track and Control Emotions

Checking Out Index Charts

Indexes around the world

Commodity indexes

The S&P 500

Defining Trends

Part 2: Viewing the Money Trail through Different Lenses

Chapter 3: Focusing on Chart Settings

Choosing Chart Attributes

Starting with the time period, range, and spacing

Period

Range

Bar, gap, and extra bars

Defining the price display

Type

Size

Color scheme

Up color and down color

Opacity

Grid

Legends

Displaying volume and toggles

Setting Overlays

Selecting Indicators

Common indicators

Volume and price as indicators

Chapter 4: Burning the Candle at Both Ends with Candlestick Charts

Deciphering the Parts of a Candlestick Chart

The candle body

Candlestick components

Candlestick shapes

Shadows on a hollow candle

Shadows on a filled candle

Windows

Introducing Color onto a Candlestick Chart

Crafting Your Chart

Reading and Using Your Chart to Make Decisions

Knowing when candles matter

Investigating individual candles

Looking at groups of candles

Buying based on bullish candlestick patterns

Chapter 5: Spotting Differences with Bar Charts

Beginning with Bar Chart Basics

Price bar components

Different types of bar charts

Building a Bar Chart from the Ground Up

Putting a Bar Chart to Work

Gaps

Short bars versus long bars

Trading ranges, support, resistance, and breakout

Chapter 6: Seeing What’s Trending with Line Charts

What Is a Line Chart?

Making a Line Chart the Easy Way

Reading and Using Your Chart Line by Line

Adding support and resistance lines

Knowing when lines matter

Chapter 7: Getting the Lay of the Land with Area Charts

Comparing Area Charts to Line Charts

Making an Area Chart You Can Show Off

Strengthening or dimming the area display

Trying different colors

Adding color lines to emphasize change

Looking at legends and labels

Adding a Personal Touch with Styles

Knowing When Area Charts Matter

Part 3: Using Chart Tools for Decision Making

Chapter 8: Charting Different Time Periods

Converting Candlestick Charts to Different Periods

60-minute to daily candle display

Daily to weekly candle display

Daily to monthly candle display

Weekly to monthly candle display

Converting Bar Charts to Different Periods

60-minute to daily bar charts

Daily to weekly bar charts

Weekly to monthly bar charts

Converting Line and Area Charts to Different Periods

Taking It One Day at a Time with Daily Charts

Looking at the daily price movement in context

Using a range of one year (or more) with a daily chart

Examining market capitalization with daily charts

Large-cap and high liquidity

Small-cap and low liquidity

Embracing Short-Term Thinking with 60-Minute Charts

Highlighting intraday price action

Using 60-minute charts for index watching

Seeing the Big Picture with Weekly Charts

Weekly bar charts

Weekly line charts

The big benefits of weekly analysis

Knowing When a Monthly Chart Can Come in Handy

Recognizing major long-term lows and highs

Analyzing investor behavior

Picking the Right Chart for the Right Range

Shifting Your Focus to Closing Prices

Chapter 9: Reading a Price Chart

Running with Bulls and Sleeping with Bears: Uptrends and Downtrends

Recognizing an uptrend

Spotting a downtrend

Bucking the Trend: When a Stock Isn’t Trending

Looking at consolidation basics

Recognizing different periods of consolidation on a chart

Reading investor behavior during consolidation

Leveling Out: It’s All about the Base

Types of bases

Double bottom base

Multiple bottom base

Rounded bottom base

V-bottom base

The start of an uptrend from a base

Reaching the Top: Muffins, Spires, or Something Else?

The rounded top

The spire

The parabolic run

The double top

The range trading top

Scaling for Profit: It’s Only Money

Arithmetic scaling

Logarithmic scaling

Scaling guidelines

Chapter 10: Harnessing the Power of Overlays

Keeping Track of Moving Averages

Plotting a moving average

Looking at moving averages for different periods

Using two moving averages and crossovers

Considering moving average ribbons

Comparing the simple moving average to the exponential moving average

Examining the uses and benefits of moving averages

Knowing when to move in and out of a stock

Finding entry points

Picking the right moving average for you

Getting into the Groove with Channel Investing

Keltner channels

Keltner uptrends

Keltner downtrends

Keltner sideways channels

Bollinger Bands

Moving average envelopes

Finding Your Sweet Spot between Horizontal Support and Resistance

Chapter 11: Using Indicators to Facilitate Chart Analysis

Beginning with Indicator Basics

Divergence

Bounded and unbounded indicators

Rolling with Momentum Indicators

Moving average convergence divergence indicator (MACD)

Momentum displays that look like the MACD

The scaling of indicators

Histograms for MACD and PPO

Relative strength index (RSI)

Picking out time periods for the RSI

Using the RSI

Considering RSI on other charts

Stochastics

Thinking of stochastics as a direction-of-movement indicator

Measuring highs and lows with %K and %D

Using Volume with Price

Chaikin money flow (CMF)

Money flow index (MFI)

On-balance volume (OBV)

Accumulation distribution (ACCUM/DIST)

Determining How Many Indicators to Use on One Chart

Chapter 12: Making Sense of Relative Strength Indicators

Relative Strength Investing Basics: Seeking Better-Performing Stocks

Sectors and industries

What makes a strong stock

Four things to know in relative strength investing

Measuring a Stock’s Relative Strength to the S&P 500, a Sector, and an Industry

Creating a ratio chart

Interpreting a ratio chart

Making broader comparisons

Ranking Stocks with SCTR

Introducing technical ranking

Plotting and interpreting the SCTR indicator

Looking at the components of the SCTR indicator

Breaking down peer groups for technical ranking

Understanding market movement in the rankings

Protecting your capital with SCTR

Using SCTR for base breakouts

Checking Out Performance Charts

Using Relative Rotation Graphs (RRG)

Part 4: Getting Organized and Managing Stock Trends

Chapter 13: Organizing Charts into Industry or Sector Groups

Recognizing the Importance of Sectors and Industry Groups

Creating and Populating ChartLists

Creating a list with a name and a number

Populating a list with one or more charts

Building lists with industry groups or sectors

Using the Number in Sorted Order button

Removing numbers from stocks inside a list

Organizing Your ChartLists

Interesting charts

Temporary scan lists

SCTR list

Watch list

Current open positions

Closed trades

Sector or industry lists

ETF list

Market overview

Index lists

Chapter 14: Keeping Track of What’s Going On

Making a Watch List

Surveying predefined scans

Saving scans to ChartLists

Creating and Using Your Three Main ChartLists

Deciding which stocks to move

Moving stocks into your three lists

Setting Alerts

Chapter 15: Conducting Breadth Analysis

Investigating Bullish Percent Indexes

Understanding how a buy or sell signal for a single stock is recorded

Interpreting the results for groups of stocks

Studying the Percentage of Stocks above the 200 DMA

Looking at the basic chart

Comparing breadth information

Reviewing the Breadth of Different Exchanges

The NASDAQ composite breadth

The New York Stock Exchange composite breadth

The Toronto Stock Exchange breadth

Chapter 16: A Quick Check of the Week’s Action

Counting the Days

Up days

Down days

Inside and outside days

Responding to Weird Price Action

Volume and price bar extremes

Outside reversal dates on weekly charts

Tracking Key Events

Options expiration days

Fed meeting dates

Spotting a Break of Support on Indexes

Part 5: Personalizing Your Stock Charts with Styles

Chapter 17: Customizing Candlestick Charts

Picking Your Personal Candlestick Indicators

Daily candlestick charts

Weekly candlestick charts

Saving Your Personal Style

Creating your default ChartStyle setting

Saving multiple ChartStyles

Trading Using a Candlestick Chart with Your Settings

Trading a daily candlestick chart with annotations

Trading a weekly candlestick chart

Sharing Your Customized Charts

Chapter 18: Fine-Tuning Your Bar Charts

Adjusting Bar Chart Settings to Your Liking

Colors

Overlays

Indicators

Special settings for weekly bar charts

Trading Using a Daily Bar Chart with Your Settings

Trading Using a Weekly Bar Chart with Your Settings

Chapter 19: Adjusting Your Line and Area Charts

Creating a Custom Weekly Line Chart

Developing Your Own Monthly Line Chart

Selecting your indicators

Saving your monthly line chart

Trading a monthly line chart

Setting Up a Specialized Monthly Area Chart

Part 6: Putting Your Stock Charting Expertise to Work

Chapter 20: Using Your Charts to Inform Your Buy, Hold, and Sell Decisions

Separating the Strong from the Weak

Sector summary

Drilling down into sectors

Drilling down into industries

Drilling down into stocks

Industry summary

Knowing When to Hold ’Em and When to Fold ’Em

Checking the speed of movement

Looking at typical support levels

Gauging gains

Regular gains from regular stocks

Gains from strong stocks

Following technical clues to help manage your trades

Thinking about trading styles

Considering big picture trends

Selling Stocks Before They Head South

Chandelier exits

Parabolic stop and reverse

Chapter 21: Putting It All Together

Gauging the Market’s Direction

Market tops

Leading sectors

Performance charts

RRG charts

Market breadth

Position of the indexes compared to the 40-week moving average

Narrowing Your Focus to Certain Sectors

Choosing your fishing holes: Sectors with promise

Investing in different sectors for ballast

Using SCTR reports

Considering income stream investing

Using Targeted Scans

Working with Price Displays, Overlays, and Indicators

Price displays

Overlays and indicators

SCTR and the relative strength rankings

Taking Away Lessons from Your Wins and Losses

Journaling about the market and your trading

Tracking and analyzing your winners and losers

Continuing to buy winners

Refraining from holding losers

Part 7: The Part of Tens

Chapter 22: Ten Common Investing Mistakes and How to Avoid Them

Trying to Fight the Market Instead of Following It

Buying a Loser

Chasing a 25–35 Percent Off Sale in Great Companies

Falling for a 75 Percent Off Sale

Forgetting That Commodity Stocks Are Very Volatile

Buying a Story Instead of a Stock

Investing in a Sick Sector

Selling a Winner Too Soon

Continuously Avoiding What’s Worked

Not Buying Stocks in Falling Markets

Chapter 23: Ten Tips for Cashing In on Tomorrow’s Amazingly Great Stock

Being Prepared for Big Moves in a Short Time

Understanding That You Don’t Have to Be First to Buy

Waiting on the Big-Name IPOs

Seeing Huge Gaps on Earnings

Watching for Crisis in a Stock

Using Volatility to Warn the End Is Near

Measuring Volatility with the Average True Range

Realizing That the SCTR Won’t Help Find Exits

Working with Bollinger Bands

Using the U.S. Dollar as a Guide

Index

About the Authors

Dedication

Authors’ Acknowledgments

Publisher’s Acknowledgments

Advertisement Page

Connect with Dummies

End User License Agreement

List of Tables

Chapter 2

TABLE 2-1 Key Indexes to Track

Chapter 10

TABLE 10-1 Moving Average Conversions

Chapter 13

TABLE 13-1 A Sample Numbering Sequence

List of Illustrations

Chapter 2

FIGURE 2-1: A stock chart showing new highs.

FIGURE 2-2: An index chart.

FIGURE 2-3: The commodities ($CRB) index.

FIGURE 2-4: The S&P 500 ($SPX) index.

Chapter 3

FIGURE 3-1: Where to find chart attributes, overlays, and indicators.

FIGURE 3-2: Period, range, and spacing selections.

FIGURE 3-3: Type, size, and color scheme settings.

FIGURE 3-4: Additional color and appearance settings.

FIGURE 3-5: Volume and toggles.

FIGURE 3-6: Overlay example.

FIGURE 3-7: Indicators.

FIGURE 3-8: Volume and price as indicators.

Chapter 4

FIGURE 4-1: Apple Inc. candlesticks.

FIGURE 4-2: Candlestick components.

FIGURE 4-3: Candlestick shapes.

FIGURE 4-4: Shadows on hollow candles.

FIGURE 4-5: Shadows on filled candles.

FIGURE 4-6: Unique candles.

FIGURE 4-7: Selecting candlesticks as a chart type.

FIGURE 4-8: Consolidation.

FIGURE 4-9: Examples of candlestick patterns.

Chapter 5

FIGURE 5-1: An OHLC bar.

FIGURE 5-2: An OHLC bar chart.

FIGURE 5-3: An HLC bar.

FIGURE 5-4: An HLC bar chart.

FIGURE 5-5: Selecting OHLC Bars (thick).

FIGURE 5-6: Support and resistance.

Chapter 6

FIGURE 6-1: A line chart.

FIGURE 6-2: A multiyear line chart.

FIGURE 6-3: Selecting a solid line chart type.

FIGURE 6-4: Selecting the start/end range.

FIGURE 6-5: Adding support and resistance lines.

FIGURE 6-6: Long-term support and resistance.

Chapter 7

FIGURE 7-1: An area chart.

FIGURE 7-2: Selecting an area chart type.

FIGURE 7-3: Lines, legends, and labels.

Chapter 8

FIGURE 8-1: Comparing 60-minute candles to one daily candle.

FIGURE 8-2: Comparing five daily candles to one week.

FIGURE 8-3: Comparing daily candles to one month.

FIGURE 8-4: Comparing weekly to monthly candles.

FIGURE 8-5: Comparing 60-minute bars to one daily bar.

FIGURE 8-6: Comparing 24 daily bars to 5 weekly bars.

FIGURE 8-7: Comparing weekly to monthly bars.

FIGURE 8-8: Line and area (mountain) charts.

FIGURE 8-9: Daily chart for one year.

FIGURE 8-10: Daily chart showing a stock becoming a winner.

FIGURE 8-11: Daily chart showing a stock staying a winner.

FIGURE 8-12: A daily chart showing a stock staying a winner in line chart format...

FIGURE 8-13: High liquidity share volume.

FIGURE 8-14: Low liquidity share volume.

FIGURE 8-15: Intraday price and volume.

FIGURE 8-16: Eleven-day, 60-minute chart.

FIGURE 8-17: A weekly bar chart.

FIGURE 8-18: A weekly line chart.

FIGURE 8-19: Monthly long-term lows.

FIGURE 8-20: A monthly candlestick chart.

Chapter 9

FIGURE 9-1: Defining an uptrend.

FIGURE 9-2: Defining a downtrend.

FIGURE 9-3: Consolidation.

FIGURE 9-4: Different types of consolidation.

FIGURE 9-5: Creating a base.

FIGURE 9-6: Rounded bottom base.

FIGURE 9-7: V-bottom low.

FIGURE 9-8: A rounded top.

FIGURE 9-9: A spire.

FIGURE 9-10: A parabolic run.

FIGURE 9-11: A parabolic run collapse.

FIGURE 9-12: Double tops.

FIGURE 9-13: A range trading top.

FIGURE 9-14: Arithmetic scale.

FIGURE 9-15: Logarithmic scale.

Chapter 10

FIGURE 10-1: 40-week moving average.

FIGURE 10-2: Two moving averages.

FIGURE 10-3: Moving average ribbons.

FIGURE 10-4: Three moving averages.

FIGURE 10-5: Simple MA versus exponential MA.

FIGURE 10-6: Keltner channel.

FIGURE 10-7: Keltner uptrend.

FIGURE 10-8: Keltner downtrend.

FIGURE 10-9: Keltner sideways channels.

FIGURE 10-10: Bollinger Bands.

FIGURE 10-11: EMA envelope.

FIGURE 10-12: Wider EMA envelope.

FIGURE 10-13: A narrow envelope around a moving average.

FIGURE 10-14: Horizontal support and resistance.

FIGURE 10-15: Wide range for channel trading.

Chapter 11

FIGURE 11-1: MACD and divergence.

FIGURE 11-2: Momentum indicators.

FIGURE 11-3: Long-term PPO and MACD.

FIGURE 11-4: RSI daily.

FIGURE 11-5: RSI daily with trend changes marked.

FIGURE 11-6: RSI weekly.

FIGURE 11-7: RSI on currency charts.

FIGURE 11-8: Stochastics daily.

FIGURE 11-9: Stochastics weekly.

FIGURE 11-10: Chaikin money flow (CMF).

FIGURE 11-11: Money flow index (MFI).

FIGURE 11-12: On-balance volume (OBV).

FIGURE 11-13: OBV ACCUM/DIST.

Chapter 12

FIGURE 12-1: Sectors and industries.

FIGURE 12-2: Different inputs for relative strength.

FIGURE 12-3: A view of SCTR rankings.

FIGURE 12-4: SCTR introduction.

FIGURE 12-5: SCTR patterns.

FIGURE 12-6: SCTR protecting capital.

FIGURE 12-7: SCTR improving from a low level.

FIGURE 12-8: Performance chart in line mode.

FIGURE 12-9: Performance chart histogram display.

FIGURE 12-10: RRG sector static.

Chapter 13

FIGURE 13-1: The ChartList banner.

FIGURE 13-2: Adding charts to a list.

FIGURE 13-3: Adding predefined groups to your ChartList.

FIGURE 13-4: Summary View for ChartLists.

FIGURE 13-5: Edit mode for ChartLists.

Chapter 14

FIGURE 14-1: The Gears icon.

FIGURE 14-2: The Predefined Scans link.

FIGURE 14-3: The Predefined Scan Results summary table.

FIGURE 14-4: Keltner channel scan results.

FIGURE 14-5: Create a new ChartList.

FIGURE 14-6: Keltner channel on default.

FIGURE 14-7: The Alert Center.

FIGURE 14-8: User-Defined Alerts page.

FIGURE 14-9: Alert Status page.

Chapter 15

FIGURE 15-1: PnF buy/sell signals.

FIGURE 15-2: A bullish percent index for the S&P 500 ($BPSPX).

FIGURE 15-3: A bullish percent index ($SPX) for three years.

FIGURE 15-4: $BPSPX for 20 years.

FIGURE 15-5: Percentage of stocks above 200 DMA for $SPX.

FIGURE 15-6: Combining breadth indicators.

FIGURE 15-7: NASDAQ composite breadth.

FIGURE 15-8: NASDAQ breadth settings.

FIGURE 15-9: NASDAQ 100 breadth.

FIGURE 15-10: New York Stock Exchange composite breadth.

FIGURE 15-11: Toronto Stock Exchange breadth.

Chapter 16

FIGURE 16-1: Counting the days.

FIGURE 16-2: Weekly information

FIGURE 16-3: Options expiration days.

FIGURE 16-4: Fed meeting dates.

Chapter 17

FIGURE 17-1: A daily candlestick chart.

FIGURE 17-2: Settings for the daily candlestick chart.

FIGURE 17-3: A weekly candlestick chart.

FIGURE 17-4: Settings for the weekly candlestick chart.

FIGURE 17-5: Saving ChartStyles.

FIGURE 17-6: Adding ChartStyle buttons.

FIGURE 17-7: Trading a daily candlestick chart.

FIGURE 17-8: The Annotate tool.

FIGURE 17-9: Annotation tool icons.

FIGURE 17-10: Trading a weekly candlestick chart.

FIGURE 17-11: Sharing your charts with friends.

Chapter 18

FIGURE 18-1: Daily bar chart indicators.

FIGURE 18-2: Settings for the daily bar chart.

FIGURE 18-3: A weekly bar chart.

FIGURE 18-4: Settings for the weekly bar chart.

Chapter 19

FIGURE 19-1: A weekly line chart.

FIGURE 19-2: Settings for a weekly line chart.

FIGURE 19-3: A monthly line chart.

FIGURE 19-4: Settings for a monthly line chart.

FIGURE 19-5: A monthly area chart.

FIGURE 19-6: Settings for the monthly area chart.

Chapter 20

FIGURE 20-1: Pro Control Center.

FIGURE 20-2: Sector ETFs.

FIGURE 20-3: Industries.

FIGURE 20-4: A stock list.

FIGURE 20-5: Support for Amazon.

FIGURE 20-6: Chandelier exits.

FIGURE 20-7: Parabolic SAR.

Chapter 21

FIGURE 21-1: Advance/decline lines.

FIGURE 21-2: A bull market profile.

FIGURE 21-3: Defensive groups perform better during a market correction.

FIGURE 21-4: Sectors relative to the S&P 500 ($SPX).

FIGURE 21-5: RRG sector alignment.

FIGURE 21-6: The price trend of the NASDAQ 100, the NASDAQ 100 bullish percent i...

FIGURE 21-7: The $SPX & $NDX indexes.

FIGURE 21-8: Sector ETFs sorted by SCTR ranking.

FIGURE 21-9: SCTR reports.

FIGURE 21-10: Using the Advanced Scan Workbench.

FIGURE 21-11: Scanning for yield.

FIGURE 21-12: Moving charts to your closed trade ChartList.

FIGURE 21-13: Trading without a stop.

Guide

Cover

Table of Contents

Begin Reading

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Introduction

So you’ve familiarized yourself with the world of investing and you’re ready to dive in, or perhaps you’re already in the market but looking for more tools to improve your stock picking and portfolio management. Great! Charting gives you a way to visualize trends in the market. You can help improve your visualization with various tools that we show you how to use in this book, such as overlays and indicators. You also get to explore many different chart types, including candlestick charts, bar charts, line charts, and area charts, as well as discover the pros and cons of each chart type.

Beyond the basics, we introduce you to various strategies you can use to organize and manage your charts to make your stock trading easier and more successful. Yes, you’ll still risk taking a loss when trading stocks, but with these tools we can help you minimize losses if one of your stocks takes an unexpected dive.

About This Book

First we introduce you to the basics of getting started in the world of stock charting. Then we take you on a tour of the most common charts that are used by traders. After you understand how to build these charts, we focus on chart settings and how the various options can impact your trading decision making. Finally we discuss how you can organize and manage your charts to trade more effectively and efficiently.

When you feel comfortable with stock charting, it’s time to develop your own style. We show you how to put all you’ve learned into building a trading style using charts to improve your stock trading decision making.

You don’t have to read this book from cover to cover (but we won’t mind if you do!); simply find the topic you’re interested in, read up on it, and put away the book until you need it again. And you can skip anything that’s marked with the Technical Stuff icon or included in a shaded box called a sidebar; such information is interesting but not crucial to understanding a given topic.

Within this book, you may note that some web addresses break across two lines of text. If you’re reading this book in print and want to visit one of these web pages, simply key in the web address exactly as it’s noted in the text, pretending as though the line break doesn’t exist. If you’re reading this as an e-book, you’ve got it easy — just click the web address to be taken directly to the web page.

Foolish Assumptions

We’ve made a number of assumptions about your basic knowledge and stock-trading abilities. We assume that you’re not completely new to the world of investing in stocks and that you’re familiar with the stock market and its basic language. Although we review many key terms and phrases as we explore the basics of charting, if everything you read sounds totally new to you, you probably need to read a basic book on investing in stocks before trying to move on to the more technical world of charting.

We also assume that you know how to operate a computer and use the Internet. If you don’t have high-speed access to the Internet now, be sure you have it before you try to trade stocks. Many of the resources we recommend in this book are available online, but you need high-speed access to be able to work with many of these valuable tools.

Icons Used in This Book

For Dummies books use little pictures, called icons, to flag certain chunks of text. Here’s what they actually mean:

Watch for these little flags to get ideas on how to improve your charting skills or where to find other useful resources.

We mark information that’s particularly important for you to remember with this icon.

If you read the charts wrong, mistakes can be made. A minor mistake can cost you a bunch of money, so we use this icon to point out particularly perilous areas.

We use this icon to point out information that’s interesting but not crucial to your understanding of the topic at hand.

Beyond the Book

In addition to the material in the print or e-book you’re reading right now, this product also comes with some access-anywhere goodies on the web. When you just want a quick reminder of charting basics, go to www.dummies.com and search for “Stock Charts For Dummies Cheat Sheet” in the Search box. There you’ll find explanations on how to find key chart settings, various chart types you can use, key decision-making tools you can add to charts, and how to use charts for spotting trends.

Where to Go from Here

You’re ready to enter the exciting world of charting. You can start anywhere in this book. Each of the chapters is self-contained. But if you’re totally new to charting, starting with Chapter 1 is the best way to understand the basics. If you already know the basics, you may want to start with Part 3 on using charts to make investing decisions. Remember, though, to have fun and enjoy your trip.

Part 1

Getting Started with Stock Charts

IN THIS PART …

Begin with the basics of building your stock charts.

Use charting to minimize your emotional response to the ups and downs of the market.

Chapter 1

Brushing Up on Stock Charting Basics

IN THIS CHAPTER

Keeping your emotions in check as you invest

Getting different views of charting

Making decisions with charting tools

Organizing and managing trends for your stocks

Tweaking your personal stock charts

You can find hundreds of books talking about technical analysis and stock charting, but if you don’t build your stock charts properly to do that analysis, you could end up getting the wrong information. In this book we introduce you to the various types of stock charts out there, as well as the tools you can use to make these charts work even better for you when you’re trying to make stock buying and selling decisions. This chapter gives you the basics.

Minimizing the Emotional Roller Coaster of Investing

Before you even start working with charts, it’s important to understand how your emotions can help make good and bad stock purchase and sale decisions. In Chapter 2, we discuss the key emotional drivers of stock trading decisions and what economic forces drive those decisions (such as changes within a company and the effect of institutional investors). We also explain how building charts can help you track stock price changes and control emotions, and we provide some fundamentals on index charts and trends.

Getting a better understanding of your own emotional reactions to these key factors that can impact the movement of stocks can help you make better business decisions based on facts rather than emotions.

Viewing Stocks from Varying Perspectives

Not all charts look the same or are meant to give you the same information. In Part 2 we introduce you to the key types of charts — candlestick charts, bar charts, line charts, and area charts. We show you how to build these charts using tools on StockCharts.com (www.StockCharts.com). Click the green button on the home page that says, “Free 1-Month Trial,” and you’ll have one month to try out the members-only sections of www.StockCharts.com for free.

All chartists should know how to build these critical chart types:

Candlestick charts:

These charts give you a detailed view of key stock information daily: open, high, low, and close.

Bar charts:

These charts give you less detail than a candlestick chart does — only the opening price and the closing price — but they can be easier to read than candlestick charts.

Line charts:

These charts show you the stock price trend with a simple line, which makes it easier to view a stock’s trend over a long period of time.

Area charts:

These charts show you the same information as a line chart, but they can be more dramatic because the area below the line is a solid color. They are most commonly found on TV financial news.

Discovering All the Tools You Can Use with Your Charts

As you become more familiar with the types of charts, you’ll find out that many variables can make the chart look different and offer you different information. Some of the key variables include

Time frames:

In

Chapter 8

we discuss the critical time periods you can set for various types of decision making and how each of these time frames impacts the information you see on the chart. Choosing the wrong time frame for the decision you’re trying to make could lead to a bad decision.

Using a price chart:

With the proper tools, a price chart can help you determine the trends in the stock market. In

Chapter 9

, we show you how to spot uptrends and downtrends in a stock price, help you determine volatility and its impact on price, and give you suggestions about what to do if a stock isn’t trending. We also talk about the various types of bases you may find in a stock chart and how these bases can impact your decision making. You’ll also find information about determining whether a stock price is likely to start falling.

Using overlays:

Overlays are powerful tools that make it easier for you to read a stock chart. We don’t introduce every type of overlay, just the ones that are good for beginning chartists to use. In

Chapter 10

, we introduce you to some handy overlays to help you get started. One of the most common is moving averages. Actually, you can find overlays for many types of moving averages. We introduce the key ones and explain the information they can show when they are used. We also introduce Keltner channels and Bollinger Bands.

Using indicators:

Indicators are another type of tool you can add to a chart. There are many types of indicators; we introduce you to the best ones for beginners in

Chapters 11

and

12

. You find momentum indicators and how to use them, as well as various types of indicators to determine the strength of a stock.

Getting Organized with Your Charts

After you’re familiar with the various types of charts and tools available, it’s time for you to start organizing how the charts can help you with your stock investing or trading decisions. Check out the following:

In

Chapter 13

, we introduce you to the power of organizing your choices by industry groups and/or sectors. This task enables you to improve your stock picking.

We show you how to keep track of what’s going on with your stocks in

Chapter 14

. This task lets you better manage your stock portfolio.

Chapter 15

focuses on various types of indexes you can use in your charts to help you compare your stocks to the broader market. This task enables you to better analyze how your portfolio is doing versus the broader market.

Chapter 16

gives you strategies for doing a weekly check of the stocks you’re holding or watching. This task helps you more efficiently track your portfolio.

Customizing Your Charts

After you have a good handle on what tools you like to use consistently for various types of decisions you need to make, you’ll want to save these various chart styles to make it easier to use them again and again. In Part 5, we show you how to customize your charts and save the ones you like. You find out how to personalize your charts by seeing how various combinations of indicators and overlays can help support your personal trading style.

Putting Everything Together

Ultimately, it’s time to take everything you’ve learned and put it all together to help you make better buying and selling decisions. We discuss some strategies in Part 6 that help you use your charts to gauge the market’s direction as well as identify leading sectors and the best stocks in those sectors. You can use these techniques to narrow your focus to the sectors in which you want to invest or trade. We also show you how to build your charts to more effectively use these tools in order to improve your investing or trading results.

We can’t guarantee that you’ll always sell stock for a profit, but we do believe using the tools we show you in this book will help you improve your buy and sell decisions. You find tips for how to pull together everything discussed to make good use of stock charts in the future and help you better understand how to use the information discussed in books like Trading For Dummies, 4th Edition, by Lita Epstein, MBA, and Grayson D. Roze and Technical Analysis For Dummies, 3rd Edition, by Barbara Rockefeller (both published by Wiley).

Chapter 2

Using Charts to Minimize Your Emotional Roller Coaster

IN THIS CHAPTER

Preparing to own stocks

Evaluating individual stocks and index charts

Seeing trends

To minimize the risks of owning stocks, you need to develop strategies for reducing your emotional reactions to the ups and downs of the market. Instead, think of your portfolio purely as a business at which you want to make money. Don’t fall in love with any part of your portfolio. With the help of the fundamentals in this chapter, you can use stock charts to take the emotions out of your decision making.

Getting Ready for the Emotions of Owning a Stock

One of the hardest things to do is to watch your money invested in stocks drop in value on any given day for any reason. This emotional turmoil is one of the difficult parts of investing or trading in the stock market, especially for new entrants.

In the following sections, we describe two important actions you can take to prepare yourself for this turmoil: understanding a few basics of the stock market and arming yourself with information to level the playing field.

Understanding a few market basics

The benefit of the stock market is that you can make your stock work for you by managing your portfolio. After you get comfortable with the little swings in the market, investing gets easier. Investors are inclined to worry about big market drops as they can do tremendous damage to a portfolio. Interestingly enough, most brokers don’t move you out of a falling stock market either. To compound that market turbulence, the news commentators try to report on stocks like they would any crisis every day, creating a lot of uncertainty. You need to find ways to address this uncertainty. One way to do that is to understand more about the markets and how to read the trends using stock charts. In the following sections, we explain a few things that can impact a stock’s price movement and how you can address them with minimal emotion.

By controlling your own investments or even following along with a broker’s investment choices, you can have an understanding of the macro part of the economy. While you may not move out of harm’s way when the market is set up to fail immediately, you can at least understand when to be more cautious. You may also recognize which sectors (different areas of the economy, such as finance or energy) of the economy are breaking down. This recognition can help you avoid these potholes.

News noise

If you turn on any financial TV show, you find people reporting news about stocks in almost the same way they would a sporting event. As you become more accustomed to working with charts, you’ll find most of the news to be just noise, with maybe a few bits of information you can use as further research with your charting.

A great example of news noise is gross domestic product (GDP). Gross domestic product is how much economic activity is happening in the economy. You continually hear that an economy is growing fast or slow. However, the stock market doesn’t speed up or slow down based on this news. When the economy and the stock market are compared side by side, it is clear that one does not predict or follow the other. In the United States, the GDP has ranged from positive 5 percent growth (which is huge) in some quarters, to negative growth in other quarters. The stock market does not reflect this huge variance.

If a country’s GDP were soaring at 4 percent over two quarters, you would think the stock market would be too. If a country is sporting 4 percent GDP but the stock market has been going lower for the same six months, the GDP is not a timely clue for investors to use for investing. Over long periods of time, if the country’s economic output is improving, the stock market is probably improving.

Changes inside a company

Stocks are also hit by other forces that you as the owner of shares in an individual company may be unaware of. Changes in government policy toward the company, internal problems in the company, or changes in sales of finished products for the company can have a positive or negative effect on the stock, long before any announcement.

For example, suppliers have insider knowledge about how things are going at the companies they supply. They can quickly determine whether a company is increasing or decreasing its order size. They may notice the first signs of a company in trouble, because the bills are being paid more slowly or the company is cutting down on standing orders.

The employees within the company may also have a better feel for what is happening inside a company or industry. While it is illegal to trade your own company stock or tell other people to trade with insider knowledge, there is no law against buying your competitors’ stock just before a quarterly or annual report on earnings if you see the industry improving. These outside forces can be a long way from your scope of knowledge. The larger the company, the harder it is to know about all the pieces.

Reading reports by analysts may give you some hint of what they are expecting to see in the upcoming quarterly or annual company reporting. You can never know for sure what is going to happen until it is formally announced by a company, but the financial press certainly may alert you to the possibility of a major news story regarding a particular company or its stock.

Institutional investors

Institutional investors are large investors that buy millions of dollars of shares in individual stocks. They may be fund managers like Fidelity, hedge funds, large family trusts, or huge brokers with big clients.

With millions of dollars at stake, some investment companies go to extreme lengths to keep track of activity. Here are a few examples:

They interview every management member they can for clues. One concern about this is that the company leadership isn’t going to tell you to sell the shares. They will always find something on which to put a positive spin.

Some large investors use satellites to track vehicle traffic at box stores like Lowes and Home Depot. If they think the volume is improving in various parts of the country, they’ve obtained powerful knowledge that the average retail investor doesn’t have.

For holiday shopping seasons, institutional investors buy traffic-flow monitoring data from survey companies that place employees in malls to count customer traffic. They compare that store-level knowledge with the car volume from the satellite monitoring companies. Then they try to figure out who is getting the sales and who is not.

While a company stock may still jump up or down on an earnings announcement, lots of serious investors are willing to make sure they have a good idea as to whether the company is going to have a good number.

For an investor without helicopters, satellites, money, interview suppliers, and management teams to disperse, these tactics can all sound a little overwhelming, but don’t let them scare you. You can level the playing field by being nimble and using different sources of data, as you find out in the next section.

Leveling the playing field

Framing a range of how well a company is doing can help an individual investor. Is the company doing better now than last month or a year ago? How can you gather that information? Are things improving? How can you follow this information? You get a couple of ideas in the following sections.

Tracking institutional investors

If large institutional investors are buying up the stock, that’s probably a good clue. Conversely, if they are selling the stock, that is still a clue, just not a positive one. They’re not really interested in telling everyone else what they are doing, but they do have to release their current holdings in a stock, and this information can be timely.

For a stock to move up in price, it needs the large institutional investors to start investing in the stock. If enough large institutional investors are trying to buy up the stock, this action pushes the price higher. As the price goes higher, most investors are happy to keep owning the stock because they are making money. Conversely, when large institutions want to sell their position and there aren’t enough buyers, this pushes the stock down.

The key for tracking moves by institutional investors is trading volume. In Chapter 3, we talk about how to display volume on charts. When these investors are making a big move in a stock, whether buying or selling, the volume of trades goes up. If they are selling, you will likely see a downward trend in stock price. If they are buying, you will likely see an upward trend in stock price. You find discussions about volume throughout this book.

Studying pressures on stock prices

When a stock sale takes place, a buyer is buying the shares from a seller. When more investors are trying to buy shares than sell shares over a short period, this pushes the price up. You may hear that there can’t be more buyers than sellers — that the numbers are equal. But the number of people with the desire to buy can be higher than the number of people with the desire to sell. The way that comes into balance is through the buyer raising his bid to buy the shares. The imbalance is where you see the price forced to trade higher, so the seller is motivated to let the shares be sold to a buyer who is willing to pay more.

Understanding that stocks trading higher in price are probably moving higher because there are more buyers than sellers is an important piece of knowledge. You have a way to see that actually happening. Using a stock chart can give you this information.

While you can’t keep track of a stock price in your head for every stock in the market, you can use the history of the stock price, and this information can be shown on a stock chart. A stock price moving up is the sum of all known information about the stock at any given time by investors. Some may have more information or less information, but the price of the stock reflects a balance between buyers’ and sellers’ opinions. Throughout this book, we show you how to take advantage of the history you can see in charts to help you make better buying and selling decisions.

Building a Chart to Track and Control Emotions

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?

Throughout this book, we show you how to use various types of charts and their tools to help you better understand market trends and make better trading and investing decisions. Using charts not only helps keep your emotions in check as you invest but also helps you track emotions and opinions that investors have about particular stocks.

Figure 2-1 shows a stock chart using a price bar to represent the trading range for a day (see Chapter 5 for an introduction to bar charts). The top of the bar represents the high and the bottom of the bar represents the low. The little tab on the left is where the price started in the morning, and the little tab on the right is where the price closed at the end of trading. The stock shown is Cabot Oil and Gas (COG).

Chart courtesy of StockCharts.com

FIGURE 2-1: A stock chart showing new highs.

Around September 1, 2017, the price pushed up above $26 to new highs. It had pushed up against this level a few times before and fallen back. Eventually, enough buyers took an interest in the stock to push it above $26. You can also see that the volume (depicted in the bottom panel) was around 5 million shares a day as a rough average for most of August. All of a sudden, the volume accelerated, and three trading days had a total volume of roughly 22 million, or more than 7 million shares a day. That extra volume of 7 million shares at $26/share is probably not a household investor buying shares. That totals over $182 million.

Using the chart, you can very quickly see the previous lows and highs on the chart. Because the stock is trading in the top right corner at fresh one-year highs, the stock looks to be hitting the ceiling of the chart.

Charting software fills the chart using the previous highs and previous lows. To do this, it adjusts the scale. As the stock price continues higher, the software adjusts the scale to accommodate the latest price information and fill the space vertically.

By using charts, you can see the broad picture of all the investors, and the price action shows you that they were buying more stock as the price made new highs. Without doing any investigating into the company’s earnings or the products it’s selling, your first clue is that opinions are getting more optimistic, a trend that is showing up in large institutional-size investing.

After you have a frame of reference for the price on the right-hand side of the chart, you can look back through the history to see other pieces of information. When and how did the stock bottom out? What was the size of the trading range for the year? Are the price bars changing in size? You can see that the stock has been moving higher on a jagged path since the lowest price in November 2016.

Checking Out Index Charts

Charts based on a particular index help you visualize how a group of stocks are affected by price changes in the market. Figure 2-1 shows a daily stock chart for one particular stock. Figure 2-2 shows the daily chart for a group of 30 stocks added together to represent an average. Making up this index are some banks; brokers; insurance, computer hardware, computer software, and energy companies; and others. This is called the Dow Jones Industrial Average (commonly called the Dow). The ticker symbol is $INDU on StockCharts.com. The companies in the index are chosen by the Dow Jones Company. By keeping track of the general price direction for some of the largest stocks in the United States, you can determine whether the stock market is moving higher or lower.

Chart courtesy of StockCharts.com

FIGURE 2-2: An index chart.

The chart of the index shows that the Dow has been rising quickly and moving from the bottom left to the top right. The last price on the right is near all-time highs. While the market doesn’t go up every day, the general trend is up.

The chart of Cabot Oil and Gas in Figure 2-1 was not nearly as great-looking for the last year, but the recent price action is improving. As the economy rolls along, some sectors improve and others fall behind. Then management in those companies tries to get more efficient to improve the company performance. This cycle continues every day but takes time to play out. If all the companies are struggling to make higher profits, the index reflects this weakness in investor opinion. By keeping track of the index, you get a picture for the broader group of stocks.

The following sections provide just a few examples of stock indexes you can follow.

Indexes around the world

You can track various indexes around the globe. Table 2-1 notes the key ones to track.

TABLE 2-1 Key Indexes to Track

Index Name

Ticker Symbol

Dow Jones Industrial Average 30 Stocks

$INDU

S&P 500 list of 500 major U.S. companies

$SPX

S&P 100 List of the Top 100 U.S. Companies

$OEX

NASDAQ 100 list of top stocks on the NASDAQ

$NDX

Index for all the stocks on the NYSE

$NYA

Index for all the stocks on the NASDAQ

$COMPQ

Russell 1000 holds the largest 1,000 companies

$RUI

Russell 2000 holds about 2,000 small-cap companies

$RUT

Canadian Stock Exchange

$TSX

London Stock Exchange

$FTSE

There are indexes for the entire world. There are indexes for each country and for each geographic region. There are commodity indexes, currency indexes, and bond indexes as well. There are charts for comparing currencies; for example, the $USDCAD compares the U.S. dollar exchange rate to the Canadian dollar. You can put together a chart of your favorite indexes based on the types of stocks in which you choose to invest.

Charts of the indexes can give you a sense of the value relative to the past. By using indexes around the world, you can evaluate the investor sentiment toward those asset classes without doing in-depth, fundamental analysis of resources written in a foreign language.

Commodity indexes

A commodity is any basic good that can be sold on the market, such as energy products (like oil and gas) and farm products (like wheat and corn). When you see the long-term price chart of 19 different commodities shown in Figure 2-3, what does that chart tell you very quickly? The scale across the bottom is measured in years from 1968 to 2017. The price is only the end-of-month price, which communicates what you want to know without the daily trading details. The price on the commodity index ($CRB) broke to new 45-year lows in 2016. Why are the commodities that the world has been built on at the lowest prices in 45 years? In one picture, the chart has probably altered your perception of what is going on in the world. Without doing thousands of hours of research into each commodity, you can see a significant change in the world based on investor attitudes to those asset classes.

Chart courtesy of StockCharts.com

FIGURE 2-3: The commodities ($CRB) index.

The S&P 500

The main stock index that all investors worldwide pay attention to is the S&P 500. This is really the best anchor point from which to view the U.S. market and the main index that all other markets are compared to.

What makes it such an important anchor is the number of companies inside the index and the broad cross section of the economy. Figure 2-4