Practical Technical Analysis (2006) Chapters 5-6
Chapter 5 - What is a Chart?
What is a chart?
- Bar Chart, Candlestick Chart, Line Chart, Equivolume, Point and Figure and other representations.
- Bar chart
- The closing price is displayed on the right side of the bar and the opening price is shown on the left side of the bar.
- A single bar represents one period of trading (intraday, day, week, etc.)
- Opening price - reflects Amateurs' opinion of value.
- Closing price - reflects action Professional traders.
- Highest point of each bar - the maximum power of bulls during that bar.
- Lowest point of each bar - shows the maximum power of bears during that bar.
- Distance between high and low reveals intensity of conflict between bulls and bears.
Chapter 6 - Longer vs Shorter Timeframe
- Intraday, daily, weekly, monthly chart
- Can be tick, minute, hourly
- Usually used by traders for day trading or short term positions
- Daily & Weekly
- More commonly used in Singapore for position trading/investments
- 5 daily bars equal 1 bar in weekly chart
- Timeframe reflects the mindset of investors
- Weekly chart shows mindset of long-term investors
- Daily chart shows short-term/mid-term investors
- Because of the lack of liquidity in some SGX stocks, it may be worthwhile to look at weekly chart
- Markets exist in different time simultaneously.
- May look like a buy on a daily chart, but a sell on a weekly chart. The signals in different timeframes of the same market may contradict one another.
- Which of them should you follow?
- When in doubt, step back and examine the charts in a timeframe that is larger than the one you are trying to trade.
- When professionals are in doubt, they look at the big picture but amateurs focus on the short-term charts.
- Double screen trading.