today a quick lesson on Stock Chart Reading Basics
This is
really for beginners kind of 101 stuff
but you know also I have to say that it
is also for not only stock charts but
Forex futures anything they can chart
and sometimes that stuff that even
intermediate or advanced traders are
forget so it's a simple lesson but a
very very important one so here it is by
the way I've got the Disney stock here
5-minute chart that's really not
consequential don't worry about either
one of those things I had to put
something up some you know some market
whether it's Forex stocks futures some
time interval you can do this with daily
charts weekly charts to take charts
whatever so what I'm going to sure is
agnostic with regard to the symbol in
with regard to the timeframe it has to
do with scaling and this is very
important because technical analysis is
very visual so you look at a chart like
this and it looks like something's
actually happening so you could look at
this different ways could put different
indicators on here whatever but I'm just
looking at price action here so it looks
like we've got this move down this
little move up this move down you know
and it looks like okay there's something
actually you know going on here and what
its kind of cover these little areas
here and it looks like alright there's
something that might be decent to trade
there alright now let me show you
something and it alone behold fasten
your seat belts cuz as I scroll back
look what happens huh all of a sudden
that range of that market would it look
like visually just to the naked eye it
doesn't look so good anymore does it no
hasn't moved very much
so now just the visual impression again
to the naked eye you know this kind of
stuff here is not really that
significant this is pretty much just go
in sideways pretty much a sideways
market so here sure we got a pretty big
move down there and then we'll move up
and then all this is really just the
sideways from there on
so what is it it's just purely sper
spective right so that's how it looks to
the naked eye and it all has to do with
how you scale your charts so here's what
I recommend a lot of times and I'll show
you on tradestation now I'm sure I'll
probably get a lot of questions about
well how do I do this in this charting
software that's charting software
alright I don't know all the different
trading software programs out there not
familiar with them all sorry if I knew
how I would definitely tell you but
unfortunately I don't so I'll show you
here in TradeStation and then go to the
discussion boards or the help desk or
support or the forums whatever and learn
how to do it on your charting software
so again you'll want to go to scaling
the question is how do i scale my charts
and so what we have here in TradeStation
right now is I have it set to automatic
so it is doing the scale range based on
the date range on the screen
okay so what does that mean by the way
well those are a couple other things
we'll come back to those as well so what
that means when you choose that setting
is that it's all it's going to look at
the high and the low that's visible on
the chart and it's going to
automatically scale the chart so that
the visible high and the visible low
stay on the chart and what that will do
is change your scaling as time goes on
so right now look for example we have 20
cents between each of these markers here
right oops actually grabs the wrong
thing and when it grabbed there okay so
20 cents between each one of those so as
I scale forward see what happens whoa
what happened
okay now between each marker there is
what five cents five cents so you see
how it changed the scaling because that
type of scaling is going to always keep
the low visible and the soy is going to
keep the high visible the low and the
high that's visible on the chart and
it's just gonna fill the chart with that
they'll never be any black space at the
top
never any black space at the bottom and
therefore it's going to chain
change the scale and that can be very
visually deceiving alright and as we go
back here here here see again it's
always filling it up so like for example
here this whole range down here okay we
see this as pretty much a sideways whip
some kind of mist so maybe there alright
pretty much a sighs wait sideways move
right and that's because we got this big
move up here and again 20 cents between
each of the markers on the y-axis now if
we scroll back let's see what happens
well okay but see how it's got the low
there and the high there now if I were
to actually expand the this is another
thing you can do expand there so we just
get that there we go that's our narrow
range market that we were looking at
that before looked very narrow range
just sideways and all of a sudden it
looks like oh wait there's some major
swings here that looks like oh that's a
pretty significant swing down that looks
like it's a pretty significant swing up
but no again we're back to five cents
between the markers and that's why so
that's a problem or it can be a problem
it can be a problem and for most people
I think it actually is because again
visually yeah if you can see I'll just
do this boom okay there you go we're
back to narrow range here right now see
now and I change this now part of what
would part of the price action that
would normally be visible it goes off
the bottom of the screen and I can't see
it and look there's black area up here
it's not filling the chart now I can
actually pull it up and with
tradestation aliyah some trading
platforms allow you just to mainly do
this so I'm left clicking and I'm
holding the left mouse button that's
what I'm doing there just scrolling up
and down so I don't have to actually go
into that the setting and others will
let you in TradeStation allows this
which is cool just again left click in
the middle of the chart and move it
around like that so those are a couple
of different ways you can do it at least
on TradeStation but my plane is
that you want to have a set scaling
right this is the bottom line lesson so
you want to set this to whatever now
it's going to depend on the price of the
market you know the stocks over $100 so
if you're dealing with a penny stock
obviously you're going to have a
sedative friend scale the future is
different Forex different whatever so
you decide on what scale is meaningful
for that market your trading where
you're going to see consolidation is
gonna look visually like consolidation
and not fill the whole chart from top to
bottom and look like something's
actually going on like those real move
meant they're like there's gonna be a
good reward to risk ratio you want to be
able to see that oh no this is just
choppy sideways consolidating market
alright so it's going to be rate as far
as this goes you want to set this to a
value that is consistent at all times at
all times so every time you look at it
your eye will get used to the patterns
and not be deceived by the virial
variable scaling that would otherwise
naturally occur and then as the market
goes on yep sure sometimes yeah let's
see I'm sure it'd happen here it goes
off the top so what do you do just drag
it down that's it that's what you got to
deal with so you gotta do a little
manual work with it now there might be
some trading platforms out there maybe
even TradeStation and allows it where
you can set the scaling here in fact
I'll just go in here and show you this
so they have all kinds of other things
you can do so you can do automatic
change data screen entire date range
then you can do a percent above or below
so that you get a little black area
above and below and then now here's the
other thing if you add your technical
analysis technique so let's say you're
putting on there a 200 period moving
average for example there would be a
good one
so the total period moving average if
you want that to show and doesn't run
off the bottom of your chart
which you will sometimes then you would
click that all right so if I did this
and actually here it is already checked
pre-checked expand the range to include
technical analysis so then a long term
moving average it's going to show that
on the chart well that's going to again
skew the price scale the scale of the
price and because now it's going to show
moving everything maybe way below the
price level but it's going to move that
sure it up to show it so it's visible on
your chart that's another thing they can
really mess you up so if you don't want
that you deselect that of course and
then there's all kinds of other stuff
you can do some graph menu she can fix
it here's where you can actually fix it
to a minimum maximum now this is for
price okay and then here yeah this is
the one you can do to movement size so
one inch is gonna be five points so if I
click on that yeah not so bueno right so
good but this is where you can fix it so
um if we always say okay and you just
got to play around with it a little bit
alright so we say well that is too tight
so let's make it point five and let's
see what that looks like okay there we
go
so now we got something that's that's
good now that will stay and but now you
got to be careful you don't want to
change this watch this extra tips here
see as long as they didn't change that
well yeah it's already got it at at that
right now and so now we're gonna be okay
but if you go in here and you change
that
okay now you're screwed no you're messed
up again so you've got to keep it this
same now again I would use different
numbers for different time intervals so
it's not just different markets but
different time intervals as well so this
is what is this again five minute chart
okay so you decide on what increment
here is good for your Y access I'd say
it's fifty cents you decide yep that's
pretty good now if I were to use a
60-minute chart let's say I'm using
multiple timeframes
well I'm not going to use 50 cents on
the 60-minute chart right then I'm gonna
want to have a wider spread a wider
range between those hash marks so just
decide on what's good free to your
markets free to your timeframes set it
and never change it otherwise it will be
deceiving to your eyes so simple tip
there but one that I find makes a big
difference sometimes people where I find
this really gets people in trouble is
when they don't know they're in a
consolidating market right and you know
again this shows this consolidation here
very very well and if it fills the
entire screen and people think Oh mark
it's actually doing something
significant there and they're trading it
and they get chopped up so this is one
very practical tip on how to avoid
getting chopped up in choppy markets all
right so now by the way I've got a
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strategies called the rubberband trade
and you can get the rubberband trade all
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my rubberband trade also if you're
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some value out of this lesson and happy
trades
you