Stock market charting software
Technical traders rely heavily on charts and indicators. In todays market, most of this is none with computers and trading software. As a speculator, you will be most interested in charts that focus on short-term price movements. The daily bar chart will typically cover a period of six to nine months. You should also have some longer-term charts, which will have less detail but will provide a broader perspective. This can be incredibly useful to put the daily charts in context. Long term trends often persist, which makes the charts that show them of value to you even as a short term speculator.
Charts can be plotted on a semi-logarithmic scale. This shows share price or index movements in percentage terms, which puts them in perspective. As an alternative, charts may be plotted on arithmetic, or linear, scale. This emphasizes absolute share price movements, and so presents a more sensitive picture. It is suitable if the price range moves only slightly. The difference between the two is best illustrated by a brief example. On the semi-logarithmic scale, the distance between points 2 and 4 is the same as between 10 and 20, because in both cases it represents a 100 percent rise. On the arithmetic scale, the latter rise is five times larger than the former because it is measured in absolute terms.
In general, commercial stock chart services use the semi-logarithmic scale. Technical analysis technical packages will allow you to switch from one to another.
You can select between types of chart. The main categories are the line chart, the bar chart, the point and figure chart, equi-volume, and Japanese candlesticks. At the bottom of some charts, you will find trading volume represented by vertical bars.
The line chart is the simplest kind. The chart plots the price on the Y-axis, which is vertical, against time on the X-axis, which is horizontal. The line plots only the closing mid-price of a share, which aficionados feel is the most significant price information. As it does not record the opening stock price or its high and low, it cuts out the noise of intra-day changes. As a result, the chart is short on detail, but it has the advantage of never appearing cluttered. Some stock market speculators insist on using a line chart, as its very simplicity makes it easy to detect a trend. But none rely on it completely, as they require more information than it provides. A bar chart can be a better bet. The bar chart is the most popular form of chart. It sometimes has a cluttered appearance, although investment software enables you to zoom in on part of the chart. The scale is more often arithmetic than semi-logarithmic, which is good for focusing on intra day detail.
Manual maintenance is realistic:
Get yourself some graph paper, a pencil, and a copy of a daily newspaper that contains the highs and lows for the previous day, and you can manually maintain your own point and figure charts easily and quickly. The entry and exit points for a stock are clear. By manual charting, you will get a better feel for point and figure than if you use software, although it will take more of your time. It is essential to keep up your charts daily or they become useless.
Incidentally, if you do use software to compose relevant charts, as you will eventually if the point and figure bug bites, be wary. Point and figure is a rather weak link in some charting software. Although this type of chart has existed since the end of the Victorian era, it only came into wider use as a result of the publication in 1958 of AW Cohens book The Three Box Reversal Method of Point and Figure Stock Market Trading. In the past few years there has been something of a revival in it, and, if used correctly, it can help in your trading. For some traders who stumble upon it late in life, it proves the missing link, the method that they were looking for, albeit not the Holy Grail.
Candlesticks traditionally ignore volume and trend lines, although the software is now incorporating these as innovations. Candlesticks are best used for examining share price movements over a short period, which is useful for traders but not so much for medium to long term investors. As candles need a closing as well as opening price, you must either wait until the end of your time frame or you can cut it short or take an instant check. As in any technical analysis, candle sticks are considered more reliable if more than one pattern is confirming the signal or trend. The advantage of candlesticks over other charts is the sheer amount of extra information that they provide. The key to this is the shadows, as well as how these combine with the real bodies to provide, on balance, more information than any other type of chart, and clearly. Candlesticks are not enough on their own and should be only one technical method that you sue. When used with volume, candlesticks are compatible with Western charting techniques, either alongside each other or, to some extent, merged.
The charting software incorporates many of the most common technical indicators moving averages, ADX, RSI, and so forth. The chart interfaces directly with order entry software, so trading is simple, right from the option montage or from the stocks market maker screen. The charting software links to some online brokerage firms for direct execution. It too, has an option montage with the capability of displaying theoretical values and the Greeks. There is some complete package which has the data, software, and brokerage all wrapped into the same software package. In fact, no matter which online broker you use, there is probably some sort of interface software; but not all are sufficient for technical or option analysis on their own.
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