Stock Charts For Dummies®
Published by: John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030-5774, www.wiley.com
Copyright © 2018 by John Wiley & Sons, Inc., Hoboken, New Jersey
Published simultaneously in Canada
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Library of Congress Control Number: 2017962794
ISBN 978-1-119-43439-9 (pbk); ISBN 978-1-119-43444-3 (ebk); ISBN 978-1-119-43442-9 (ebk)
So you’ve familiarized yourself with the world of investing and you’re ready to dive in, or perhaps you’re already in the market but looking for more tools to improve your stock picking and portfolio management. Great! Charting gives you a way to visualize trends in the market. You can help improve your visualization with various tools that we show you how to use in this book, such as overlays and indicators. You also get to explore many different chart types, including candlestick charts, bar charts, line charts, and area charts, as well as discover the pros and cons of each chart type.
Beyond the basics, we introduce you to various strategies you can use to organize and manage your charts to make your stock trading easier and more successful. Yes, you’ll still risk taking a loss when trading stocks, but with these tools we can help you minimize losses if one of your stocks takes an unexpected dive.
First we introduce you to the basics of getting started in the world of stock charting. Then we take you on a tour of the most common charts that are used by traders. After you understand how to build these charts, we focus on chart settings and how the various options can impact your trading decision making. Finally we discuss how you can organize and manage your charts to trade more effectively and efficiently.
When you feel comfortable with stock charting, it’s time to develop your own style. We show you how to put all you’ve learned into building a trading style using charts to improve your stock trading decision making.
You don’t have to read this book from cover to cover (but we won’t mind if you do!); simply find the topic you’re interested in, read up on it, and put away the book until you need it again. And you can skip anything that’s marked with the Technical Stuff icon or included in a shaded box called a sidebar; such information is interesting but not crucial to understanding a given topic.
Within this book, you may note that some web addresses break across two lines of text. If you’re reading this book in print and want to visit one of these web pages, simply key in the web address exactly as it’s noted in the text, pretending as though the line break doesn’t exist. If you’re reading this as an e-book, you’ve got it easy — just click the web address to be taken directly to the web page.
We’ve made a number of assumptions about your basic knowledge and stock-trading abilities. We assume that you’re not completely new to the world of investing in stocks and that you’re familiar with the stock market and its basic language. Although we review many key terms and phrases as we explore the basics of charting, if everything you read sounds totally new to you, you probably need to read a basic book on investing in stocks before trying to move on to the more technical world of charting.
We also assume that you know how to operate a computer and use the Internet. If you don’t have high-speed access to the Internet now, be sure you have it before you try to trade stocks. Many of the resources we recommend in this book are available online, but you need high-speed access to be able to work with many of these valuable tools.
For Dummies books use little pictures, called icons, to flag certain chunks of text. Here’s what they actually mean:
Watch for these little flags to get ideas on how to improve your charting skills or where to find other useful resources.
We mark information that’s particularly important for you to remember with this icon.
If you read the charts wrong, mistakes can be made. A minor mistake can cost you a bunch of money, so we use this icon to point out particularly perilous areas.
We use this icon to point out information that’s interesting but not crucial to your understanding of the topic at hand.
In addition to the material in the print or e-book you’re reading right now, this product also comes with some access-anywhere goodies on the web. When you just want a quick reminder of charting basics, go to www.dummies.com and search for “Stock Charts For Dummies Cheat Sheet” in the Search box. There you’ll find explanations on how to find key chart settings, various chart types you can use, key decision-making tools you can add to charts, and how to use charts for spotting trends.
You’re ready to enter the exciting world of charting. You can start anywhere in this book. Each of the chapters is self-contained. But if you’re totally new to charting, starting with Chapter 1 is the best way to understand the basics. If you already know the basics, you may want to start with Part 3 on using charts to make investing decisions. Remember, though, to have fun and enjoy your trip.
Part 1
Chapter 1
IN THIS CHAPTER
Keeping your emotions in check as you invest
Getting different views of charting
Making decisions with charting tools
Organizing and managing trends for your stocks
Tweaking your personal stock charts
You can find hundreds of books talking about technical analysis and stock charting, but if you don’t build your stock charts properly to do that analysis, you could end up getting the wrong information. In this book we introduce you to the various types of stock charts out there, as well as the tools you can use to make these charts work even better for you when you’re trying to make stock buying and selling decisions. This chapter gives you the basics.
Before you even start working with charts, it’s important to understand how your emotions can help make good and bad stock purchase and sale decisions. In Chapter 2, we discuss the key emotional drivers of stock trading decisions and what economic forces drive those decisions (such as changes within a company and the effect of institutional investors). We also explain how building charts can help you track stock price changes and control emotions, and we provide some fundamentals on index charts and trends.
Getting a better understanding of your own emotional reactions to these key factors that can impact the movement of stocks can help you make better business decisions based on facts rather than emotions.
Not all charts look the same or are meant to give you the same information. In Part 2 we introduce you to the key types of charts — candlestick charts, bar charts, line charts, and area charts. We show you how to build these charts using tools on StockCharts.com (www.StockCharts.com). Click the green button on the home page that says, “Free 1-Month Trial,” and you’ll have one month to try out the members-only sections of www.StockCharts.com for free.
All chartists should know how to build these critical chart types:
As you become more familiar with the types of charts, you’ll find out that many variables can make the chart look different and offer you different information. Some of the key variables include
After you’re familiar with the various types of charts and tools available, it’s time for you to start organizing how the charts can help you with your stock investing or trading decisions. Check out the following:
After you have a good handle on what tools you like to use consistently for various types of decisions you need to make, you’ll want to save these various chart styles to make it easier to use them again and again. In Part 5, we show you how to customize your charts and save the ones you like. You find out how to personalize your charts by seeing how various combinations of indicators and overlays can help support your personal trading style.
Ultimately, it’s time to take everything you’ve learned and put it all together to help you make better buying and selling decisions. We discuss some strategies in Part 6 that help you use your charts to gauge the market’s direction as well as identify leading sectors and the best stocks in those sectors. You can use these techniques to narrow your focus to the sectors in which you want to invest or trade. We also show you how to build your charts to more effectively use these tools in order to improve your investing or trading results.
We can’t guarantee that you’ll always sell stock for a profit, but we do believe using the tools we show you in this book will help you improve your buy and sell decisions. You find tips for how to pull together everything discussed to make good use of stock charts in the future and help you better understand how to use the information discussed in books like Trading For Dummies, 4th Edition, by Lita Epstein, MBA, and Grayson D. Roze and Technical Analysis For Dummies, 3rd Edition, by Barbara Rockefeller (both published by Wiley).