Charts
Charts
● ● ● ● ● ●
Line Charts Bar Charts Candle Charts Swing Charts Arithmetic and Logarithmic Point & Figure
1
Benefits of Using Charts Jack Schwager, Technical Analysis (1996) ●
Charts provide a concise history
●
Give a sense of volatility
●
Used as a Timing Tool
●
Used to set Stops for Money Management
●
Highlight Patterns
2
Chart Construction ●
Many ways of viewing price data have been created.
●
Over the years they evolved to show us more information.
●
Each evolution has allowed us to explore new ways to analyse the data, identify correlations, and create forecasts.
“Price lies all the time. Facebook can be valued at $40 billion and then $20 billion and then $200 billion inside of a four-year period of time. Which of these prices is the truth? None of them. But all of them were momentarily true, until they were rendered a lie, and a new truth was forged in the fires of the marketplace. ” Joshua M Brown, The Reformed Broker Jan 18, 2016
3
Line Chart ●
The most simple is a Line Chart.
●
All the historical closing prices for a security are joined.
●
In this case the last prices posted for every Friday are joined to create the chart.
●
Early charts were always lines as it was easiest to create.
4
Bar Chart ●
People started recording the first price of the period and comparing the last to the first.
High
Close (Last)
●
Over time the highest price and the lowest price of the period were also stored.
●
These became known as the: ○ ○ ○ ○
Open - First price High - Highest price Low - Lowest price Close - Last price
Open (First)
Low
5
Bar Chart ●
From these, a bar was drawn on the chart for each period.
●
Each bar represents all the price action for that period.
6
Candlestick Chart High
●
Developed in Japan mid 1600s to trade rice futures.
●
Candles use the same Open, High, Low, & Close (OHLC) as the Bar Chart.
●
The Body being Solid or Hollow denotes if the Close is Higher or Lower than the Open.
Open (First)
Close (Last)
Close (Last)
Open (First)
Low
7
Candlestick Chart ●
The box between the Open and the Close is called the “Body” or “Real Body” of the Candle.
●
The line above and beneath the body is the “Shadow” (sometimes called whiskers).
●
Rule of Thumb: ○ A Solid Body is heavy and will sink. Close is below Open.
○
A Hollow Body is light and will rise. Close is above Open. 8
Swing Charts ●
Remove Time and just look at the rise and fall of prices.
●
Many types available: ○ ○ ○ ○
Price Swings Percent Swings Volatility Swings Gann Swings
●
Each have different rules to determine when the swing should turn.
●
Great for identifying trends. 9
2-Day Gann Swing Charts ●
Gann called his Swings his Master Trend Detector. They were his rules for identifying trend direction.
●
Gann would classify bars into: ○ ○ ○ ○
●
Higher Lower Outside (higher and lower) Inside
A downward 2-day swing requires two higher bars for the swing to turn up.
10
Price Scales ● ● ●
All charts so far have been Arithmetic. Gives an unrealistic display when comparing to history. Changes in Value are more important than changes in price. 10,000 - 1,000 == 10% 2,000 - 1,000 == 50%
● ●
What Great Depression? Arithmetic is not suitable for long-term charts.
11
Price Scales ●
We solve this by using a Logarithmic Price Scale.
●
Sometimes called a semi-log scale as we are not using log on the time scale.
●
2001 & 2008 do not compare to 1929.
12
Point & Figure ●
Similar to Swings because they take time out of the picture.
●
Most like a Point Swing Chart.
●
Define the Box Size and the number of boxes needed to start a new column.
●
In P&F we handle Logarithmic by defining a Percentage box size.
●
P&F will be covered in more detail later. 13
Charts
● ● ● ● ● ●
Line Charts Bar Charts Candle Charts Swing Charts Arithmetic and Logarithmic Point & Figure
14
● ● ● ● ● ●
Line Charts Bar Charts Candle Charts Swing Charts Arithmetic and Logarithmic Point & Figure
1
Benefits of Using Charts Jack Schwager, Technical Analysis (1996) ●
Charts provide a concise history
●
Give a sense of volatility
●
Used as a Timing Tool
●
Used to set Stops for Money Management
●
Highlight Patterns
2
Chart Construction ●
Many ways of viewing price data have been created.
●
Over the years they evolved to show us more information.
●
Each evolution has allowed us to explore new ways to analyse the data, identify correlations, and create forecasts.
“Price lies all the time. Facebook can be valued at $40 billion and then $20 billion and then $200 billion inside of a four-year period of time. Which of these prices is the truth? None of them. But all of them were momentarily true, until they were rendered a lie, and a new truth was forged in the fires of the marketplace. ” Joshua M Brown, The Reformed Broker Jan 18, 2016
3
Line Chart ●
The most simple is a Line Chart.
●
All the historical closing prices for a security are joined.
●
In this case the last prices posted for every Friday are joined to create the chart.
●
Early charts were always lines as it was easiest to create.
4
Bar Chart ●
People started recording the first price of the period and comparing the last to the first.
High
Close (Last)
●
Over time the highest price and the lowest price of the period were also stored.
●
These became known as the: ○ ○ ○ ○
Open - First price High - Highest price Low - Lowest price Close - Last price
Open (First)
Low
5
Bar Chart ●
From these, a bar was drawn on the chart for each period.
●
Each bar represents all the price action for that period.
6
Candlestick Chart High
●
Developed in Japan mid 1600s to trade rice futures.
●
Candles use the same Open, High, Low, & Close (OHLC) as the Bar Chart.
●
The Body being Solid or Hollow denotes if the Close is Higher or Lower than the Open.
Open (First)
Close (Last)
Close (Last)
Open (First)
Low
7
Candlestick Chart ●
The box between the Open and the Close is called the “Body” or “Real Body” of the Candle.
●
The line above and beneath the body is the “Shadow” (sometimes called whiskers).
●
Rule of Thumb: ○ A Solid Body is heavy and will sink. Close is below Open.
○
A Hollow Body is light and will rise. Close is above Open. 8
Swing Charts ●
Remove Time and just look at the rise and fall of prices.
●
Many types available: ○ ○ ○ ○
Price Swings Percent Swings Volatility Swings Gann Swings
●
Each have different rules to determine when the swing should turn.
●
Great for identifying trends. 9
2-Day Gann Swing Charts ●
Gann called his Swings his Master Trend Detector. They were his rules for identifying trend direction.
●
Gann would classify bars into: ○ ○ ○ ○
●
Higher Lower Outside (higher and lower) Inside
A downward 2-day swing requires two higher bars for the swing to turn up.
10
Price Scales ● ● ●
All charts so far have been Arithmetic. Gives an unrealistic display when comparing to history. Changes in Value are more important than changes in price. 10,000 - 1,000 == 10% 2,000 - 1,000 == 50%
● ●
What Great Depression? Arithmetic is not suitable for long-term charts.
11
Price Scales ●
We solve this by using a Logarithmic Price Scale.
●
Sometimes called a semi-log scale as we are not using log on the time scale.
●
2001 & 2008 do not compare to 1929.
12
Point & Figure ●
Similar to Swings because they take time out of the picture.
●
Most like a Point Swing Chart.
●
Define the Box Size and the number of boxes needed to start a new column.
●
In P&F we handle Logarithmic by defining a Percentage box size.
●
P&F will be covered in more detail later. 13
Charts
● ● ● ● ● ●
Line Charts Bar Charts Candle Charts Swing Charts Arithmetic and Logarithmic Point & Figure
14
