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Charting 101 Securities Trader Group Presented by: Craig Schwenn

Charting 101 Securities Trader Group Presented by: Craig Schwenn. Disclaimer.

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Charting 101 Securities Trader Group Presented by: Craig Schwenn

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  1. Charting 101 Securities Trader Group Presented by: Craig Schwenn

  2. Disclaimer This webinar/meetup is for educational purposes only. All examples and analysis are intended for these purposes and should not be considered as specific investment or trading advice. All hypothetical examples are for the purposes of teaching principles and are not intended to suggest future results. The risk of loss in trading securities can be substantial. Traders must consider all relevant risk factors including their own personal financial situation before trading.

  3. Overview • Technical Analysis • Components of a Price Chart • Support & Resistance • Common Indicators • Charting Software for Stocks

  4. Technical Analysis

  5. Technical Analysis (TA) • Forecasting future price movement based on the analysis of past price movement • Differs from Fundamental Analysis as traders are not concerned with company’s financial reports • Traders use a variety of charts and indicators in comparison to price to determine direction • Traders often develop rule-based trading styles

  6. The Trend • Refers to the general direction of a stock’s price • Many traders like to trade in the direction of the trend • Three (3) types of trends • Up • Down • Sideways • Three (3) phases • Accumulation • General Participation • Distribution • Price Charts are used to identify these trends

  7. Price Charts

  8. What is a Price Chart? • Shows the movement of price of a financial instrument over a selected period of time • Time is shown on the X-axis and price is shown on the Y-axis • Cornerstone for Technical Analysis • Used to recognize • Trends • Chart & Candlestick patterns • Support & Resistance

  9. Sample Chart – SPY (ETF)

  10. Chart Types • Chart type is determined by how the price is plotted • Types • Line Chart • Bar Chart • Candlestick Chart • Point and Figure Chart • Many Others

  11. Line Chart • Most basic chart type • Only plots closing price of financial instrument for specified time frame which are connected by a line

  12. Bar Chart • Chart is created by a several vertical lines representing each plotted time interval • Visually provides more data regarding the stock’s price for the time interval • The OHLC Bar • Open • High • Low • Close

  13. Bar Chart

  14. Candlestick Chart • Similar to bar chart • Shows the stock’s open, high, low, and close values for the time period

  15. Candlestick Chart

  16. Point and Figure (P&F) Chart • Consist of columns of X’s and O’s • X’s represent rising prices • O’s represent falling prices • Time is NOT a factor in creating a P&F chart • Used to filter out “noise” in stock movement and to easily find support and resistance • See StockCharts.com for more information

  17. Point and Figure chart

  18. Support & Resistance

  19. Definition • Support & Resistance are areas on a price chart where supply and demand meet • Supply = Selling = Resistance • Demand = Buying = Support • Support: Price point where there is more buying pressure than selling pressure which drives prices up (bullish) • Resistance: Price point where there is more selling pressure than buying pressure which drives prices down (bearish) • Support = Resistance

  20. Finding Support and Resistance • Highs and Lows • Trend Lines • Moving Averages • Gaps • Other Options • Even Price Points • Indicators

  21. Highs and Lows • S&R is established by connecting common highs or lows with horizontal lines • A S&R line becomes stronger as more price points hit and fail to break the line • Stock Price has a long memory • All time highs and all time lows represent strong resistance • Previous highs or lows can become a short term resistance • Often will not get a perfect S&R line – Create S&R Zones

  22. How to Draw Lines • Get as much data on the chart (monthly time frame) • Change chart type to Line Chart • Mark all time highs and all time lows • Create lines where two (2) or more price points will touch line • Switch chart type to candlestick chart and adjust if appropriate • Switch to weekly chart to see if there are any new shared Highs or Low • Repeat for daily chart • Once done, update only when price exhibits new H/L

  23. Trend Lines • Connect price in a rising (bull) or falling (bear) trend • Usually connects the low price points in a rising trend • Usually connects to the high price points in a falling trend • Can draw the opposite to these rules if price is showing strong pattern (see SPY) • The more points touching the line, the strong the trend line and thus support or resistance • Drawing trend lines can help traders see chart patterns

  24. Moving Averages (MA) • Show the average stock price over specified time interval • Drawn for you by most charting software • One of the most commonly used indicators • Common Short Term moving averages ( < 50 ) are 10, 20, or 30 • Common Long Term moving averages are 50, 100, and 200 • Long Term MAs provide stronger support & resistance, but often introduce more severe volatility when broken

  25. Gaps • An area on the chart where there were no trades during regular market hours • Typically is created when the opening price is higher (or lower) than the previous day’s close • There are different types of gaps • The wicks of the two candles represent support and resistance

  26. Other Options for S&R • Even Price Points • Indicators • Volume at Price • Pivot Points • Bollinger Bands • ??

  27. Common Indicators

  28. Volume • Number of shares bought and sold within a given time period • Often overlooked by many traders • Supports or denies the price action by measuring the commitment behind the move • Volume spike can indicate a possible • Break through of support or resistance • Reversal in an established trend

  29. Moving Averages • Moving Averages smooth a stock’s closing price over a given period • Help define current direction of a stock • Two common types of moving averages • Simple Moving Average (SMA) • Exponential Moving Average (EMA) • Considered a lagging indicator • Adjust time period of moving average according to trading style • Some traders use the cross over point from different MA periods to enter & exit trades

  30. Moving Average Convergence-Divergence (MACD) • Calculated by subtracting a longer moving average (MA) from the shorter moving average • Unbounded Indicator • Common indicator setting is 12, 26 and 9 EMAs (signal line) • Positive MACD (above 0) means the shorter MA is above the longer MA and gaining momentum • When MACD crosses center line it signals that the shorter MA crossed the longer MA • Some traders use the crossover of the MACD and signal line to enter and exit trades • Often shows signs of trend reversals through divergence

  31. Stochastic Oscillator • Momentum Indicator • Shows location of close relative to the high-low range over a set period • Common interval is 14 %K with a trigger line of 3 %D • The trigger line is used to enter and exit trades • Range is from 0 to 100 • > 80 is overbought • < 20 is oversold • Not ideal for trending markets, but great in sideways markets • Used to recognize divergences as well

  32. Relative Strength Index (RSI) • Momentum oscillator which measures change of price movements • Common interval is 14 • Range is 0 to 100 • Overbought when > 70 and oversold when < 30 • Considered bullish when > 50 and bearish when < 50 • Like most oscillators, works best in sideways trends • Can be used to find divergences

  33. Final Thoughts • You can draw on indicators to find support and resistance or divergence • Never use just one indicator to make trading decisions • Be careful of indicator overload, i.e. analysis paralysis • The perfect indicator does not exist

  34. Charting Software

  35. Charting Software for Stocks • Purpose: To plot a financial instrument’s price over time • Types • Desktop Applications • Web Applications • Other (i.e. Excel)

  36. Which One is the Best? • There isn’t a perfect solution • Determining Factors • Financial Instruments • Cost • Data Series • Time Frame • Analysis Type • Indicators • Drawing Tools • Scanning Options • Back Testing / Strategies • Alerting Options • Connect to Broker

  37. Recommended Solutions • My Personal Recommendations for Beginners • Broker • StockCharts.com • ThinkOrSwim • Resource Document on STG Meetup page

  38. Next Meetup Approach Trading Like a Business February 23, 2014 1:00 PM – 3:00 PM Southeast Regional Library Meeting Room B 10599 Deerwood Park Blvd. Jacksonville, FL, 32256

  39. Questions?

  40. References • http://www.investopedia.com/university/technical/techanalysis7.asp • http://stockcharts.com/help/doku.php?id=chart_school:overview:technical_analysis • http://stockcharts.com/school/doku.php?id=chart_school/

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