What Every Trader Ought To Know About Price Charts
Today I want to give you a brief overview of what charts are, what charts are available to you, basic technical studies, and most importantly what charting software I am using and why.
So What Are Charts And Why Do I Use Them?
You’ve all seen Stock Charts at some point, whether in the newspaper, on the web or that funny App ‘Stocks’ on your iphone. Quite simply a chart is a visual representation of a stocks’s past price action. I say stocks but it also applies to indices, futures, forex etc.
By looking at the charts we can see where the price has been going and can then make an educated decision on where it might go in the future
That’s how me make our money right?
If you go to Google Finance and search for a particular stock then it will bring up a simple line chart. About as simple as you’ll find. It shows Price against Time.
This type of chart is showing the price that Apple Inc closed at on each day going back over a period of about 1 year.
Being a line chart, this is only displaying 1 piece of price data. The closing price. I like to see more than just the closing price. That is why I use a ‘candlestick chart’. This type of chart not only displays the closing price, but also the opening price, the highest price that day and the lowest price that day.
This chart is what you would see on your iphone in the ‘Stocks’ app. It shows exactly the same as the chart from Google above. A simple daily line chart going back over 1 year.
Charts With More Detail
So, the purest charts you’ll see show closing price against time. And I like to see more so I use Candlestick Charts. What about all the Technical Indicators you can add to make these charts look really fancy?
I love keeping things simple, but I have to admit, I use more than just price and time displayed on my charts.
There must be thousands upon thousands of different chart and technical indicator combinations that could confuse the life out of you but the silly thing is, they are still only showing you price action. There’s a whole library of decent books available on all the technical indicators that you could use so I’m not about to detail them here!
My advice to you:
If you’re going to use technical indicators, use as few as you find necessary and make sure you have a very good understanding of what they do
The chart you see here is another daily chart for Apple Inc. This one is a candlestick chart. I have zoomed in so you can see more detail so this is only displaying 4 months of data. I grabbed this from stockcharts.com They have a great web based charting package that allows lots of customisation. I used these years ago however was forced to stop when they stopped showing data for London Stock Exchange stocks. Great if you trade U.S stocks though.
First thing to notice is the coloured vertical bars. This displays the price action for each day. Briefly explained, the candlestick consists of a body and wick. The wide part is the body shows the opening and closing prices and the wick shows the highs and lows of the day.
At the very top of this chart is a typical technical indicator. It is called RSI or Relative Strength Index (a variation of this indicator happens to be one of my favourite tools of choice)
The blue and red lines you see on the chart are what’s called moving averages.
The coloured red and grey vertical bars immediately below the candlesticks display daily volume.
At the bottom of the chart is another technical indicator called MACD or Moving Average Convergence/Divergence. (sounding complicated already?)
So What Charts Am I Using?
For the last few years the only charting software I have used is ProRealTime.
When I began using it I was looking for a really customisable charting package that would save my personal settings but most importantly, was free. Back then I was experimenting and learning lots about trading and didn’t want to have the ‘overhead’ of a charting package that probably wouldn’t pay for itself. I’ve become accustomed to using it now and can’t see any reason to change in the future. It does everything I currently need.
That being said, if I discovered a really cool charting app for the ipad, I could be persuaded to use that in addition. But currently I’m not aware of any apps that do what I require.
I would like to add, I know many people, especially UK traders use Sharescope. And although it isn’t free, I recently wanted to give this a try. More so out of curiosity. However I ran into a major problem; Sharescope doesn’t run on Mac OSX. I quickly discarded it.
I know I could’ve got all technical and ran it on my Mac using a Windows emulator program but that didn’t interest me. I happily continued using ProRealTime.
The above image is a typical screen shot of one my trading screens in ProRealTime. It’s a daily candlestick chart of Apple Inc going back over about 8 months. You’ll notice some technical indicators that I have added and personalised to suit my trading strategy. Down the left hand side is a pre-set list of US tech 200 stocks with their ticker symbol and % price change.
Why Use ProRealTime?
I currently still use the free version of ProRealTime. This is completely adequate for me trading with End of Day data. This means I can display charts showing 1 candlestick per 1 day of price action. I can go to longer time frames too like weekly and monthly.
What the free package does not allow is realtime data or any charts with a timeframe shorter than 1 day
But since I’ve designed my trading strategies around daily charts, I’m happy with End of Day prices.
Another plus point for me using ProRealTime is that it’s a web based charting package. What I mean here is I can use anyone’s computer, Mac or PC, to log into ProRealTime with my account details and go straight to my work station.
In reality, I only ever use my own computer but I can see the benefits of this feature:
- What if your computer broke and left you unable to trade?
- What if you were travelling and your computer was stolen?
With ProRealTime you would just borrow another computer, log in and get to work.
Many premium, paid for charting programs like Sharescope are not web based. They are software you need to install and run from your computer’s hard drive. Connecting to the internet to update price data.
My trading strategies require me to find the right technical setups within a range of pre-defined stocks. The list of pre-defined stocks is well into the thousands so searching for potential trades on a daily basis would take a month of Sundays!
Luckily, with the use of a Screener, I can search thousands of stocks for the required setups within seconds.
I’m pleased to say that ProRealTime has a great screener that does the job with ease. And of course, it’s fully customisable. Check my Video Vault for how to program the screener.
To Summarise Why ProRealTime Is My Choice:
- Clear, fully customisable charts
- Free (for use of end of day data)
- Huge number of technical indicators
- Data for a massive range of stocks, forex, commodities etc
- Web based software
- Great screening tools
- Ability to backtest strategies
What Other Choices Are There?
So you don’t want to use ProRealTime for whatever reason. What other options do you have? Why not give a few of the following free charting softwares a go?
If you are happy to pay for a subscription software then 2 big players are listed below:
In addition to all the above, there are apps available for tablets and phones.
It’s also worth noting that virtually all brokers supply their own trading software. The best I’ve seen is provided by IG.com. However, they have a basic and premium chart package. The premium one is what I’m referring to. The last time I checked, they charge £30 per month however if you make 4 or more transactions with them, they rebate the cost in full. To make 4 transactions could cost you less than the price of a cup of tea! Their charts are providing by ProRealTime and have live data too.
Where To Next..
Thanks for coming along to read this post. Hopefully you understand the basics of charting software and I’ve given you an insight into what I use and why I use it.
I’d love to hear what Charting software you’re using so let me know in the comments below.
If you want to learn more about technical indicators or screeners and how to use them, keep an eye on my Video Vault section at the top of the page.
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