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Charts allow you to view the price patterns of stocks. You can view an example chart of XCEL Energy [a stock which trades on the NYSE, Symbol: XEL] below. This is the type of chart we will be viewing for our studies throughout this online trading manual, and how charts are displayed/viewed on our screens…
You will notice that there are individual bars [known as candlestick bars] throughout the chart. Each single bar represents a day’s information for a stock.
Briefly, every stock [eg., Microsoft, Yahoo, Dell, Home Depot, McDonalds, Wal-Mart, Coca-Cola, etc.] trades throughout the day, from the opening bell to the closing bell. For example, in the USA the market opens at 9.30am sharp [this is 2.30pm UK time], and closes at 4.00pm [which is 9pm UK time]. Between these hours, the majority of trading [shares being bought and sold/exchanged] is done.
Between the open and close, every stock moves up and down – ie., the 'price' of the market 'fluctuates'. At the closing minute, once all the stocks have settled, there will be four items of data, which can be extracted from the day's activity...
These four key items of data are:
The OPENING price [OPEN]
The Days HIGHEST Price [HIGH]
The Days LOWEST Price [LOW]
The CLOSING Price [CLOSE]
There is also a fifth item [Volume] we use in our calculations, but we will not worry about that right now - focus on the above four items of data. These four items of data are available for each and every stock, and is often abbreviated the OHLC data [Open, High, Low, Close]. The OHLC data allows us [or a computer program/application] to automatically construct ‘charts’ which represent each day’s data.
For our purposes, the most preferred charting format is what is known as a ‘candlestick’ chart. The following, simple illustration shows this ‘candle’, and how this is represented. Study this closely…
Our goal, in using a chart, is to quickly and clearly 'see' specific patterns which develop from time to time, which provide the basic criteria for determining the direction of a stock, and with a little added work, the 'trend index-alignment' based buy signals. You will learn more about this unique formula which is central to our trading strategy, in the next page/section.
Candlestick charts, provide a very quick and reliable interpretation of short-term market movements in an easy-to-view format...
One 'candlestick' bar represents a day's market action...
As you will note in the simple diagram above, there is a main 'body' and two tails, one tail above the body, and one tail below the body…
Now, The 'high' of the day is represented by the top of the top-tail. The 'low' of the day is represented by the lowest point of the bottom-tail. The main body represents today's open [indicated in the illustration above] and today's close [also indicated in the illustration above].
You will notice some
candlestick bars are black, some are white.
The key point to take note of is...
If today's close was ABOVE today's open then the 'body' is kept 'white'. If today's close was BELOW today's open then the 'body' is shaded 'black'.
Take a close look at the illustration above, which clearly defines what a ‘candlestick’ bar looks like, and how a candlestick stock-chart looks.
On the above illustration, you will note that the body of some of the candles is shaded ‘black’ and some of the candles shaded ‘white’...
If the market [stock] closes above the open, the bar is shaded white [white means an UP day]. If the market closes below the open, it is shaded black [this means a DOWN day]. This is the beauty of candlesticks, and a very appropriate format for our users, as it allows us to quickly identify the very simple visual interpretation of whether the day was ‘up’, or whether it was ‘down’. That is a good start.
Better Trading Decisions...
Take a look at the following stock chart, taken directly from our screen. The charts look the same whether we view stocks in the UK, USA, or any other market [including major indexes such as the Dow Jones, FTSE 100 etc.]. You can view the chart for any stock you wish by clicking on the 'Stock-Charts' link on the left hand side of your screen and entering the stock name or symbol. If you do not know the 'symbol' for a stock, then simply look it up using our useful "Symbol Lookup" button.
This example shows the chart for IBM [symbol: IBM] stock...
As you can see, underneath the main chart is the 'volume'. The Volume represents the number of shares which changed hands on each day/bar. Underneath the volume, you can see the 'trend index' for the stock.
All charts that load up on our system shows the main chart and trend index underneath. You can very quickly decipher the 'buy' points and 'sell' points.
More on this on the next page, where we take a close look at our central trading strategy: The trend index 'alignment' method...
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