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Chart Reading


Just The Basics                            
 

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              Practice
Disclaimer: I do not recommend daily trading. Bots occupy the exchanges. Massive dip cycles usually hit around January, July. Growth cycles June, December. Work out your price ranges before you take action. The best information can come from company quarterly reports. You should be very skeptical if they are lacking on numbers, debt, revenue, wages. Funding stages do not count. This is for products, services that have launched to the public. This is not financial advice.

Basics Descriptions & Examples

Up & Down

Green, or white bars mean the price is going up. Red, black is a loss in price.

Bull & Bear

In simple terms it means the market is in a up pattern. Bull stabs up with it's horns.
The market is in a down pattern. Bear is the opposite.

Curves

By using multiple points on the chart. You can draw a series of b spline curves. It's a great addition to the straight lines, giving the data a more natural visual flow.

Basics II Descriptions & Examples

Support

With multiple touching points in the chart. You can determine the support, bottom horizontal line and resistance. The top horizontal line. This is where stock experts determine where the price should stop falling, or reverse direction. If it bounces, & does not hit the level determined. It will continue to fall to the next support level.

Retrace

After a dip the stock/coin value goes back to a previous range. It's between 1/3 and 2/3 of the prior move. If it dips too far it's a trend reversal. When I said the DOW Jones would go down to 13k-18k. I'm looking at the likely retrace from 26k. It was too high, too fast. Mostly over the span of a year. Nothing in the market suggested it earned such growth. Further research reveals companies accumulating obscene debt, stock buy backs, speculation, derivatives. Normally the market grows slowly. It's based on how well it performs with the consumers. Supply and demand economics. To accelerate this you invent reasons, or hit some kind of major breakthrough. Such as going from the tube computers, to silicon, then internet based desktops. Invented reasons is cheating. No matter how many degrees said 'expert' in a suit has. Basic math says you can't reward failure over and over, or putting off the problems for tomorrow, AKA debt.

Trend Lines

Draw straight lines on the chart. This is below the reaction low. In an upward line. Or above the peaks, in a downward line. To ascertain the current movement. When the lines are broken this normally warns of a trend reversal.

Flat Yield Curves

A curve, flat that can appear from a normal or inverted yield curve. It depends on the changes in it's condition. This occurs when it goes from high growth to slow growth, or recession. The yields on long term bonds fall and securities rise. In the the opposite, a recession into a recovery, or high growth. Long term bonds rise, and short term securities go down. This creates a inverted yield curve for the flat yield curve.

Wedge

Create a wedge with two converging lines. With two lines drawing a triangle pointing right. This is on the point of interest. A bull straight to up and bear line straight to down converging on the chart.

Signs Descriptions & Examples

Bull/Bear Trap

It suggests a price up, but is incorrect. As it suggests it's a trap. The stock price is ready to go down. Like a roller coaster finally hitting the peak. The opposite is true for a bear trap. It goes up instead of further going down. A fake out to novices reading charts.

Ascending Triangle

It usually forms an upward trend. You start from one point and go forward with a line below. The price action slowly forms a upward line from the bottom. While the high price action stays flat, forming a horizontal line. Then eventually the two points meet at the end, forming a triangle that looks like a door wedge.

Breakout

When the price goes above the expected high or expected low. Some kind of extreme up or down in a short period of time, beyond the normal movement.

Correction

After a big jump up or fall down. The stock usually settles into a correction. Compared to a retrace 1/3 to 2/3 of the prior adjustment.

Death Cross

When this occurs. You get a shorter moving average. A move that is below the longer moving average. This tends to happen in a 50 day. Where it crosses below the 200 day average. It can be used to spot incoming crashes, recessions.

Fibonacci

The numerical sequence 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144 and so on is created by adding the first two. To arrive at the third number.  2+3 =5, 1+2 =3, 5+3 =8, 21+13 =34. Easy. This means the ratio of the next number is 61.8%. The inverse is 38.2% for a Fib retrace. This ratio is used often to determine future price action. One of the pillars of chart reading.

Patterns Descriptions & Examples

Confirmation

Investors often look for signals before buying, selling. This is confirmation. It will show a trend that suggests something lower or higher than the previous outcome. It would go above or below the average.

Diamond

The high and low points are towards the middle. The beginning and ending of this pattern are in the left and right of the chart. It would look like a off kilter + on the chart. When you connect all 4 end points. It forms a diamond ♢ pattern. This often leads to a high or low, based on where it forms.

Double Triangle

Draw two triangles pointing down ▽ ▽. This is where the chart showed a high point into a dip, then high point, times two. Two highs, line. In between those two highs is a dip, down. This forms the triangle pattern. This is also known as a double bottom. It can signal a climb up.

Head and Shoulder

With three or more troughs, with a middle trough that is lower than the others. This can lead to a bullish, up reverse pattern. You are looking for a head, shoulders and trend line, neck; connecting the peaks. When it's broken the pattern is complete. The inverse is a inverse head and shoulders. ︵

Falling Wedge

When you get a bull pattern. Create a wedge that is wide at the top and goes down, contracts with the price heading downward. Eventually determining a resistance point, a breakaway.

Additional Descriptions

Golden Cross

The short moving stock moves beyond the longer moving stock. The 50 day going above the 200 day average.

Hammer

When the candles move low after the opening day, but go up at the close, end of the day. Higher than the daily low. It looks like a square stop sign, or a hammer.

Oscillator

The indicator says the market is oversold or overbought in volume. If a oscillator is extremely high it's over bought. If it's extremely low it's oversold.

Bearish Divergence

A higher high that shows an indication of a lower high. It could show a reversal. It's mostly common with momentum oscillators.

Moving Average

The average of data for a specific number of points in time. Movement for each calculation, using the latest x number of points in time. A moving average tends to lag the market. An EMA, exponentially smoothed moving average can attempt to reduce the lag.

Practice Examples

Test 1

Full Image
Using what we learned, predict the outcome in the right side of the white space. Then click the image. No cheating.

Test 2

Now predict the next outcome in the right side of the white space. Then click the image.

Test 3

Predict the final outcome in the right side of the white space. Then click the image.

Overall Market

Even when the market crashes. You can see it takes time for various companies, markets. In the 2007 crash, retail didn't hit it's bottom until 2012. Some markets recovered as early as 2009. This is why figuring out ranges is important.

Conclusion

Congratulations! You have gotten better at reading charts. Remember that it's only one part of investing. It exists to give you an idea of buy, sell, hold outcomes. Chart reading will not always be right, but when paired with data, research, awareness of the market, experience. You will be in a better position than most of your competition.

Advice Contact Explanation

Buy Low Sell High

The worst advice you can give a newcomer. Buy low when? Sell at the top when? It's unknown until the market has played out. Better advice is run a simulator, get practice. When you go to a game tournament, an Olympic event. Arrive with the gear you need. Train for the event. Then participate. Go in blind, you'll get destroyed. This is the case for investing. At this juncture the market's bar of competition is low. 80% of all stocks are owned by the .1% (give or take). The rich elite, most of them act the same way. They use advisors like Goldman Sachs, JP Morgan (who just admitted they gave people bad advice). They run trade bots and specific algorithms. It makes day trading near impossible. But it also makes events, like Tesla emerging near impossible to predict. Competition is at all time lows. You merely need some practice and you're better off than the 90%. You will be less likely to lose your money, and more likely to make it.

Company Life Span

It's just as vital to know how long a company will be around. Autodesk is a good example. If you only look at their stocks you wouldn't know they have billions in debt, the core staff was removed years ago. They have been buying competitors software, and absorbing them into their library. When you dig you realize their future is very dark. Pair that with the stock flat lining for years. You can make a more reasonable decision. What about Tesla? The owner is a fire cracker, but the facts stand. His company is the first to push electric cars.
His closest competitors are promising 2020 releases. Sounds good for companies like Ford. But, further investigation reveals they have around a hundred billion in debt, a large portion of their car owners fell behind on payments. No real growth, with the gasoline car market's prices dropping like a rock. Those are just a few instances. Take notes, keep track of various companies, markets. You are getting an idea, not trying to come up with ultimatums. Maybe they'll turn it around. With that knowledge you know where they have to succeed.

Absolutes

I've seen far too many emotionally attached to the company. They view it as victory, or defeat. They defend the company on social media. That's not investing. It's ranges, estimations. Be wary of your ego, absolutes.