module 2 - charting basics
TRANSCRIPT
The Responsible Trader Lessons
The Responsible Trader Lessons
The Responsible Trader’s - POVModule 2 – Charting Basics
The Responsible Trader Lessons
The Responsible Trader Lessons
The Responsible Trader’s - POV• The Responsible Trader's POV (Point of View).
• These are my notes, my own additional research and studies on the Topic that I posted, and my personal observations and opinions that I am sharing to further enhance our knowledge and understanding.
• Some of these were previously posted on “The Responsible Trader” thread, Stock Market Pilipinas (www.stockmarketpilipinas.com). This is the latest version of previous posts I made.
• Some of these plus further explanations and discussions will be appearing in my forthcoming book “The Responsible Trader.”
The Responsible Trader Lessons
The Responsible Trader Lessons
Quick Review - What is the Trend?Can you draw the Trendline?
Dow defined an uptrend as a situation in which each successive rally closes higher than the previous rally high, and each successive rally low also closes higher than the previous rally low. In other words, an uptrend has a pattern of rising peaks and troughs
H1
L1
H3
H2
L3
L2
The Responsible Trader Lessons
The Responsible Trader Lessons
Quick Review – What is the Trend?Can you draw the trendline?
The opposite situation, with successively lower peaks and troughs, defines a downtrend. Dow's definition has withstood the test of time and still forms the cornerstone of trend analysis.
H1
L1
H2
H3
L2
L3
The Responsible Trader Lessons
The Responsible Trader Lessons
Quick Review – What is the Trend?Can you see an Uptrendline or a Downtrendline?
This is a sideways or flat trend with the Highs and the Lows on the Same Level with each other.There is no discernible Uptrendline or Downtrendline
H1 H2 H3 H4
L1 L2 L3
The Responsible Trader Lessons
The Responsible Trader Lessons
Charting BasicsLine, Bar and Candlesticks
If I give you the following intraday data for a certain stock can you draw a line chart, a bar chart and a candlestick chart
Open at 9:30 A.M. P10.00 High at 11:30 A.M P25.00Low at 2:00 P.M. P 5.00Close at 3:30 P.M. P15.00
The Responsible Trader Lessons
The Responsible Trader Lessons
P5.00
P25.00
P20.00
P15.00
P10.00
9:30 A.M 11:30 A.M. 2:00 P.M. 3:30 P.M.
Line Chart
DataOpen at 9:30 A.M. P10.00 High at 11:30 A.M P25.00Low at 2:00 P.M. P 5.00Close at 3:30 P.M. P15.00
P R I C E
T I M E
The Responsible Trader Lessons
The Responsible Trader Lessons
P5.00
P25.00
P20.00
P15.00
P10.00
9:30 A.M 11:30 A.M. 2:00 P.M. 3:30 P.M.
From Line Chart to a Transition Image
DataOpen at 9:30 A.M. P10.00 High at 11:30 A.M P25.00Low at 2:00 P.M. P 5.00Close at 3:30 P.M. P15.00
HIGH 25.00
LOW 5.00
CLOSE 15.00
OPEN 10.00
P R I C E
T I M E
The Responsible Trader Lessons
The Responsible Trader Lessons
P5.00
P25.00
P20.00
P15.00
P10.00
9:30 A.M 11:30 A.M. 2:00 P.M. 3:30 P.M.
From Transition Image to Price Bar
DataOpen at 9:30 A.M. P10.00 High at 11:30 A.M P25.00Low at 2:00 P.M. P 5.00Close at 3:30 P.M. P15.00
HIGH 25.00
LOW 5.00
CLOSE 15.00
OPEN 10.00
P R I C E
T I M E
The Responsible Trader Lessons
The Responsible Trader Lessons
A Japanese candlestickIs composed of two lines. A vertical line called the shadow or wick and the full height represents the trading range.
HIGH
LOW
Two Horizontal Lines representingOpen and Close For the periodUsually connected as Rectangle
CLOSE
OPEN
Shadow or Wick
Shadow or Wick
HIGH
LOW
OPEN
CLOSE
The Responsible Trader Lessons
The Responsible Trader Lessons
P5.00
P25.00
P20.00
P15.00
P10.00
9:30 A.M 11:30 A.M. 2:00 P.M. 3:30 P.M.
From Price Bar to Candlestick
DataOpen at 9:30 A.M. P10.00 High at 11:30 A.M P25.00Low at 2:00 P.M. P 5.00Close at 3:30 P.M. P15.00
HIGH 25.00
LOW 5.00
CLOSE 15.00
OPEN 10.00
P R I C E
T I M E
The Responsible Trader Lessons
The Responsible Trader Lessons
P5.00
P25.00
P20.00
P15.00
P10.00
9:30 A.M 11:30 A.M. 2:00 P.M. 3:30 P.M.
Candlesticks
Would you believe me if I tell you that this is a Candlestick with a Name?
The Responsible Trader Lessons
The Responsible Trader Lessons
P5.00
P25.00
P20.00
P15.00
P10.00
9:30 A.M 11:30 A.M. 2:00 P.M. 3:30 P.M.
Using our usual procedure, we can see that the Open, High, Low and Close are all the same – P15.00If you are in a relationship, this is what you call platonic, no action, nothing is happening. For this reason in Candlestick Charting this is Called a Four-Price Doji
When I started learning candlestick charting, I found it hard to remember all the Japanese terms. So I did some out-of-the-box thinking. I used key words, to be more specific Pinoy words, to strengthen my memory association.For a better appreciation of Candlesticks, let us do some out-of-the-box thinking and try to look at candles from the eyes of a Pinoy trader.
The Responsible Trader Lessons
The Responsible Trader Lessons
A Doji is a Candlestick with no Real body. Doji’s signify indecision on the part of the Buyers and the Sellers. There are four of them:
Cross Doji 4-Price DojiGravestone DojiDragonfly Doji
It is very difficult to remember Japanese terms so I use key words as memory aid. For the Doji my Pinoy keyword is Dolphy. Skinny, when he was still alive. May he rest in peace.
The Responsible Trader Lessons
The Responsible Trader Lessons
Japanese Candlesticks with Real Body and without or very little Wicks or Shadows are called Marubozu
Green Marubozu - Bullish Red Marubozu - Bearish
High Same as
Close
Open Same as
Low
Close Same as
Low
High Same as
Open
The closing price determines the color of the candle. If the close is higher than the open, then the color is green and vice versa.Marubozu in Japanese means “close cropped” or shaven head and shaven bottom. My keyword is “maraming nabusog.”
If you see something like that is shaven head and shaven bottom I am sure “maraming nabusog na mata.” Another keyword is “maraming nabusog” na traders because there are many trades that happened during the day
The Responsible Trader Lessons
The Responsible Trader Lessons
A Candlestick Pattern consisting of a Candlestick with a Real Body followed by another Candlestick with a Smaller Body is called Harami.
Bullish Harami Bearish Harami
Harami is a two-candlestick pattern where the last candle is contained within the range of the previous candle and is the opposite color.
Harami in Japanese means pregnant. My keyword is “harang me”. If my wife is pregnant I cannot make ……… kaya naharang ako. Just fill in the blanks, I might get censored by MTRCB.
The Responsible Trader Lessons
The Responsible Trader Lessons
The Importance of Viewing Charts on Different Time FrameS
Daily Chart showing Break in Uptrendline
Weekly Chart showing Uptrendline still Intact
Monthly Chart showing Strong Uptrendline
The Responsible Trader Lessons
The Responsible Trader Lessons
An Arithmetic or Linear Price Scale is plotted on the side of the chart so that there is an equal distance between the prices, and each unit change on the chart is represented by the same vertical distance on the scale, regardless of what price level the asset is at when the change occurs.
By contrast, a Logarithmic Price Scale is plotted so that the prices in the scale are not positioned equidistantly; instead, the scale is plotted in such a way that two equal percent changes are plotted as the same vertical distance on the scale.
Image source: http://www.investopedia.com/ask/answers/05/logvslinear.asp
Arithmetic vs. Logarithmic Price Scale
Price Scale sameDistance 5, 10, 15, 20, 25, etc.
Price Scale from 10 to 15 wider than from 35 to 40