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