Using Charts for Trade Decision Making
Day trading is much more that reacting to hints from friends and relatives that there is an investment that you need to get in on. That strategy is a near sure-fire path to a short career in day trading. You wouldn’t expect to go through school without learning to read, and the same guidance applies to investing.
Charts are the tools that provide information at a glance to traders with the knowledge and experience to fully leverage them to their advantage. More than just monitoring traditional stock tickers that are also useful tools for investors, charts serve many purposes in evaluating existing conditions, monitoring trends, and researching history and volatility.
How Does Using Charts Benefit Traders?
Charts vary in their use and information provided and even in their basic functions:
Historical charts – provide information on how markets or individual stocks have performed over a period of years, months, or even weeks to provide a potential investor with insight to future expectations of performance.
Trending charts – used to generate visual display of changes in value of markets, stocks, or indexes to alert potential buyers and sellers to current conditions.
Relative Rotation Graph (RRG) – this is a more recent development in charting tools that places markets in quadrants that reflect momentum and position in various categories of lagging, weakening, improving, or leading. The RRG can be presented in multiple views to provide information related to monthly or daily activity.
Several presentation methods are also commonly utilized in various chart techniques:
Line Charts – simple line charts can be used to visualize performance of a stock over a period of time. Complexity can be added to line charts by compressing time being analyzed into data points on the graph depending on the purpose of the analysis.
Bar Charts – bar charts are commonly used to provide a snapshot of plot pricing of a stock over time that includes the high, low, open, and close over the periods being presented by the chart. A simple bar format indicates each of these values assuming each element is available for the charting functions.
Candlestick charts are another very popular charting method that also includes the price at open, close, and the daily high and low values. High and low values are represented by vertical lines, while boxes represent the open and close range for the day. Filled in boxes indicate the price at close is lower than the open price, while clear boxes indicate the opposite. The boxes are referred to as the ‘candlesticks’.
Point & Figure Charts are somewhat different in their presentation of information to the trader. Rather than focusing on periods of time point & figure charts illustrate changes in price regardless of the time periods. Some traders appreciate the simplicity of point and figure charts since there are no entries unless price is impacted making activity relatively easy to evaluate.
Using Charts for Multiple Levels of Information and Sophistication
Among each basic type of charts there are increasing levels of sophistication and advanced analysis available for individual purposes and preference. Although each of these methods has its own distinct characteristics in how information is gathered and presented it is personal preference when considering which is most effective to any individual trader.
A trader’s most important consideration in selecting charts that are meaningful for investment decisions is which presentation makes it easier to detect the information needed to make the most profitable trades.
Understanding charting techniques and putting them to effective use for your trade activities requires some education in how to create and interpret the information provided. Leveraging charts for your trading advantage requires continuing commitment to:
- Learn how to use the charts effectively and continue your education and understanding of the information.
- Don’t switch repeatedly from one type of charting analysis to another. Once you’ve determined which method works best for you, focus on better use of that charting technique.
- Analyze the information regularly – especially in recent periods of volatility, it becomes critical to keep track of movements and trending information frequently.
Using Charts Effectively for your Day Trading Decisions
Learning to use charts effectively to promote intelligent and consistent decisions is a significant factor in successful day trading.
SureTrader is a leading online broker that provides charting tools to complement various day trading decisions. SureTrader provides friendly and courteous support available to our clients on a 24×7 basis to answer any questions and resolve problems.
SureTrader’s desktop and mobile applications ensure timely and flexible access to SureTrader services – iOS and Android platforms are each supported. Global access to services enables quick and easy trades even in after-hours trading.
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Disclaimer: SureTrader Blog is not intended for U.S. persons. Stock information is not to be viewed as buy or sell recommendations.