This section is all about understanding stock charts. Known as “Technical Analysis,” charting enables us to visualize a stock not through numbers but patterns. It allows us to get to know the stock, see its history, learn its personality, and make a value judgment on its future.
We will start with a basic price chart, move on to technical indicators and assess their importance and meaning in future sessions.
See below a stock chart of INTEL (INTC); what does it tell you?
Now, look at the same chart with comments; once you understand what each of these arrows means, you are ready to step forward into the technical indicators section.
This chart is in a Daily OLHC bar chart format, mapped to the Logarithmic Scale.
Ticker & Company Name: the ticker (INTC) is the unique abbreviated stock reference code; all stocks have a unique Ticker.
OLHC: “Open, High, Low, Close” refers to the bar itself. The opening price is the left-sided dash, High is the top of the vertical line, Low is the bottom of the line, and Close is the right-sided horizontal dash.
Time-frames are always plotted along the bottom of the chart and can be anything from 1 minute per bar (intraday) to 1 year per bar. This chart shows a daily chart which means each bar equals one day.
Chart Scaling: This is important; most professional chart readers use the “Logarithmic Scale,” meaning each unit along the right-sided Y-Axis is the same percentage apart; this makes it very easy for you to see on the price chart what percentage a Stock moves on any given day in history. The bottom right-hand side shows 2.20%; this is the % between the horizontal plot lines.
The other essential scale is the “Arithmetic Scale,” which shows a fixed price in the Vertical Y-Axis, like $2, $4, $6, etc.
The theories behind candlestick charts are so abundant that one could write a book about it, and many have. This graphic shows candlesticks; the hollow candles indicate the stock closed up for the day; the filled candlesticks show a down day for the stock. The hollow candlestick shows the up day pictorially quite nicely as the extent of the surge “Trading Range” from Opening Price to Closing Price can be seen very clearly.
In this graphic, can you see one of the most popular uses of a candlestick chart, spotting a “DOJI”?
The “Doji” is when the opening and closing prices are very close together. This indicates there could be a change in direction, this is not accurate 100% of the time, but it does hold more often than not. The Doji Cross is formed when the Bulls and the Bears cancel each other out in trading for that day, and equilibrium is achieved.
This could indicate a support level or resistance line is encountered or being built. In this picture, there is a reversal in the trend.
That was a lot of information; however, now you are on your way to being a chart reader.