Stock Charts For Dummies

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.

• Introduction 1About This Book 1Foolish Assumptions 2Icons Used in This Book 2Beyond the Book 3Where to Go from Here 3Part 1: Getting Started with Stock Charts 5Chapter 1: Brushing Up on Stock Charting Basics 7Minimizing the Emotional Roller Coaster of Investing 7Viewing Stocks from Varying Perspectives 8Discovering All the Tools You Can Use with Your Charts 8Getting Organized with Your Charts 9Customizing Your Charts 10Putting Everything Together 10Chapter 2: Using Charts to Minimize Your Emotional Roller Coaster 11Getting Ready for the Emotions of Owning a Stock 11Understanding a few market basics 12Leveling the playing field 14Building a Chart to Track and Control Emotions 15Checking Out Index Charts 17Indexes around the world 18Commodity indexes 19The S&P 500 20Defining Trends 20Part 2: Viewing the Money Trail Through Different Lenses 23Chapter 3: Focusing on Chart Settings 25Choosing Chart Attributes 26Starting with the time period, range, and spacing 26Defining the price display 29Displaying volume and toggles 33Setting Overlays 34Selecting Indicators 36Common indicators 36Volume and price as indicators 37Chapter 4: Burning the Candle at Both Ends with Candlestick Charts 39Deciphering the Parts of a Candlestick Chart 40The candle body 41Shadows on a hollow candle 42Shadows on a filled candle 43Windows 44Introducing Color onto a Candlestick Chart 45Crafting Your Chart 46Reading and Using Your Chart to Make Decisions 48Knowing when candles matter 48Buying based on bullish candlestick patterns 49Chapter 5: Spotting Differences with Bar Charts 51Beginning with Bar Chart Basics 51Price bar components 51Different types of bar charts 52Building a Bar Chart from the Ground Up 54Putting a Bar Chart to Work 55Gaps 55Short bars versus long bars 56Trading ranges, support, resistance, and breakout 56Chapter 6: Seeing What’s Trending with Line Charts 59What Is a Line Chart? 59Making a Line Chart the Easy Way 61Reading and Using Your Chart Line by Line 62Adding support and resistance lines 63Knowing when lines matter 64Chapter 7: Getting the Lay of the Land with Area Charts 67Comparing Area Charts to Line Charts 67Making an Area Chart You Can Show Off 69Strengthening or dimming the area display 69Trying different colors 70Adding color lines to emphasize change 70Looking at legends and labels 71Adding a Personal Touch with Styles 71Knowing When Area Charts Matter 72Part 3: Using Chart Tools for Decision Making 75Chapter 8: Charting Different Time Periods 77Converting Candlestick Charts to Different Periods 7860-minute to daily candle display 78Daily to weekly candle display 79Daily to monthly candle display 79Weekly to monthly candle display 80Converting Bar Charts to Different Periods 8160-minute to daily bar charts 81Daily to weekly bar charts 81Weekly to monthly bar charts 82Converting Line and Area Charts to Different Periods 83Taking It One Day at a Time with Daily Charts 84Looking at the daily price movement in context 84Using a range of one year (or more) with a daily chart 86Examining market capitalization with daily charts 88Embracing Short-Term Thinking with 60-Minute Charts 91Highlighting intraday price action 92Using 60-minute charts for index watching 92Seeing the Big Picture with Weekly Charts 94Weekly bar charts 94Weekly line charts 95The big benefits of weekly analysis 95Knowing When a Monthly Chart Can Come in Handy 96Recognizing major long-term lows and highs 96Analyzing investor behavior 97Picking the Right Chart for the Right Range 98Shifting Your Focus to Closing Prices 99Chapter 9: Reading a Price Chart 103Running with Bulls and Sleeping with Bears: Uptrends and Downtrends 104Recognizing an uptrend 104Spotting a downtrend 105Bucking the Trend: When a Stock Isn’t Trending 107Looking at consolidation basics 107Recognizing different periods of consolidation on a chart 108Reading investor behavior during consolidation 109Leveling Out: It’s All about the Base 110Types of bases 110The start of an uptrend from a base 114Reaching the Top: Muffins, Spires, or Something Else? 115The rounded top 116The spire 117The parabolic run 118The double top 119The range trading top 120Scaling for Profit: It’s Only Money 121Arithmetic scaling 121Logarithmic scaling 123Scaling guidelines 123Chapter 10: Harnessing the Power of Overlays 125Keeping Track of Moving Averages 126Plotting a moving average 126Looking at moving averages for different periods 129Examining the uses and benefits of moving averages 133Getting into the Groove with Channel Investing 135Keltner channels 135Bollinger Bands 139Moving average envelopes 140Finding Your Sweet Spot between Horizontal Support and Resistance 142Chapter 11: Using Indicators to Facilitate Chart Analysis 145Beginning with Indicator Basics 145Divergence 146Bounded and unbounded indicators 147Rolling with Momentum Indicators 147Moving average convergence divergence indicator (MACD) 148Momentum displays that look like the MACD 150Relative strength index (RSI) 153Stochastics 158Using Volume with Price 161Chaikin money flow (CMF) 162Money flow index (MFI) 163On-balance volume (OBV) 165Accumulation distribution (ACCUM/DIST) 166Determining How Many Indicators to Use on One Chart 167Chapter 12: Making Sense of Relative Strength Indicators 169Relative Strength Investing Basics: Seeking Better-Performing Stocks 170Sectors and industries 170What makes a strong stock 171Four things to know in relative strength investing 172Measuring a Stock’s Relative Strength to the S&P 500, a Sector, and an Industry 172Creating a ratio chart 173Interpreting a ratio chart 175Making broader comparisons 176Ranking Stocks with SCTR 176Introducing technical ranking 176Plotting and interpreting the SCTR indicator 178Looking at the components of the SCTR indicator 179Breaking down peer groups for technical ranking 181Understanding market movement in the rankings 181Protecting your capital with SCTR 183Using SCTR for base breakouts 185Checking Out Performance Charts 186Using Relative Rotation Graphs (RRG) 188Part 4: Getting Organized and Managing Stock Trends 191Chapter 13: Organizing Charts into Industry or Sector Groups 193Recognizing the Importance of Sectors and Industry Groups 194Creating and Populating ChartLists 195Creating a list with a name and a number 195Populating a list with one or more charts 197Building lists with industry groups or sectors 198Using the Number in Sorted Order button 198Removing numbers from stocks inside a list 200Organizing Your ChartLists 201Interesting charts 202Temporary scan lists 202SCTR list 203Watch list 203Current open positions 203Closed trades 203Sector or industry lists 203ETF list 204Market overview 204Index lists 204Chapter 14: Keeping Track of What’s Going On 205Making a Watch List 206Surveying predefined scans 206Saving scans to ChartLists 208Creating and Using Your Three Main ChartLists 209Deciding which stocks to move 210Moving stocks into your three lists 211Setting Alerts 212Chapter 15: Conducting Breadth Analysis 215Investigating Bullish Percent Indexes 216Understanding how a buy or sell signal for a single stock is recorded 217Interpreting the results for groups of stocks 217Studying the Percentage of Stocks above the 200 DMA 220Looking at the basic chart 220Comparing breadth information 220Reviewing the Breadth of Different Exchanges 222The NASDAQ composite breadth 222The New York Stock Exchange composite breadth 225The Toronto Stock Exchange breadth 226Chapter 16: A Quick Check of the Week’s Action 227Counting the Days 227Up days 228Down days 228Inside and outside days 229Responding to Weird Price Action 230Volume and price bar extremes 230Outside reversal dates on weekly charts 231Tracking Key Events 232Options expiration days 233Fed meeting dates 234Spotting a Break of Support on Indexes 235Part 5: Personalizing Your Stock Charts with Styles 237Chapter 17: Customizing Candlestick Charts 239Picking Your Personal Candlestick Indicators 240Daily candlestick charts 240Weekly candlestick charts 242Saving Your Personal Style 244Creating your default ChartStyle setting 244Saving multiple ChartStyles 245Trading Using a Candlestick Chart with Your Settings 246Trading a daily candlestick chart with annotations 246Trading a weekly candlestick chart 250Sharing Your Customized Charts 251Chapter 18: Fine-Tuning Your Bar Charts 253Adjusting Bar Chart Settings to Your Liking 254Colors 254Overlays 255Indicators 255Special settings for weekly bar charts 256Trading Using a Daily Bar Chart with Your Settings 257Trading Using a Weekly Bar Chart with Your Settings 259Chapter 19: Adjusting Your Line and Area Charts 263Creating a Custom Weekly Line Chart 264Developing Your Own Monthly Line Chart 266Selecting your indicators 267Saving your monthly line chart 268Trading a monthly line chart 269Setting Up a Specialized Monthly Area Chart 270Part 6: Putting Your Stock Charting Expertise to Work 273Chapter 20: Using Your Charts to Inform Your Buy, Hold, and Sell Decisions 275Separating the Strong from the Weak 275Sector summary 276Industry summary 279Knowing When to Hold ’Em and When to Fold ’Em 279Checking the speed of movement 280Looking at typical support levels 280Gauging gains 280Following technical clues to help manage your trades 281Thinking about trading styles 283Considering big picture trends 284Selling Stocks Before They Head South 284Chandelier exits 284Parabolic stop and reverse 285Chapter 21: Putting It All Together 287Gauging the Market’s Direction 288Market tops 288Leading sectors 290Market breadth 294Position of the indexes compared to the 40-week moving average 295Narrowing Your Focus to Certain Sectors 296Choosing your fishing holes: Sectors with promise 297Investing in different sectors for ballast 298Using SCTR reports 298Considering income stream investing 299Using Targeted Scans 299Working with Price Displays, Overlays, and Indicators 302Price displays 302Overlays and indicators 303SCTR and the relative strength rankings 303Taking Away Lessons from Your Wins and Losses 304Journaling about the market and your trading 304Tracking and analyzing your winners and losers 305Continuing to buy winners 306Refraining from holding losers 307Part 7: The Part of Tens 309Chapter 22: Ten Common Investing Mistakes and How to Avoid Them 311Trying to Fight the Market Instead of Following It 311Buying a Loser 312Chasing a 25–35 Percent Off Sale in Great Companies 313Falling for a 75 Percent Off Sale 314Forgetting That Commodity Stocks Are Very Volatile 314Buying a Story Instead of a Stock 315Investing in a Sick Sector 316Selling a Winner Too Soon 316Continuously Avoiding What’s Worked 317Not Buying Stocks in Falling Markets 318Chapter 23: Ten Tips for Cashing In on Tomorrow’s Amazingly Great Stock 319Being Prepared for Big Moves in a Short Time 319Understanding That You Don’t Have to Be First to Buy 320Waiting on the Big-Name IPOs 321Seeing Huge Gaps on Earnings 321Watching for Crisis in a Stock 322Using Volatility to Warn the End Is Near 322Measuring Volatility with the Average True Range 323Realizing That the SCTR Won’t Help Find Exits 323Working with Bollinger Bands 324Using the U.S Dollar as a Guide 324Index 327