Charts
● Line Charts● Bar Charts● Candle Charts● Swing Charts● Arithmetic and Logarithmic● Point & Figure
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Benefits of Using Charts
Jack Schwager, Technical Analysis (1996)
● Charts provide a concise history
● Give a sense of volatility
● Used as a Timing Tool
● Used to set Stops for Money Management
● Highlight Patterns
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Chart Construction
● Many ways of viewing price data have been
created.
● Over the years they evolved to show us
more information.
● Each evolution has allowed us to explore
new ways to analyse the data, identify
correlations, and create forecasts.
“Price lies all the time. Facebook can be valued at $40 billion and then $20 billion and then $200 billion inside of a four-year period of time. Which of these prices is the truth? None of them. But all of them were momentarily true, until they were rendered a lie, and a new truth was forged in the fires of the marketplace. ”
Joshua M Brown, The Reformed Broker Jan 18, 2016
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Line Chart
● The most simple is a Line Chart.
● All the historical closing prices for a security
are joined.
● In this case the last prices posted for every
Friday are joined to create the chart.
● Early charts were always lines as it was
easiest to create.
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Bar Chart● People started recording the first price of
the period and comparing the last to the
first.
● Over time the highest price and the lowest
price of the period were also stored.
● These became known as the:○ Open - First price○ High - Highest price○ Low - Lowest price○ Close - Last price
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Low
Open (First)
Close (Last)
High
Bar Chart
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● From these, a bar was drawn on the chart
for each period.
● Each bar represents all the price action for
that period.
Candlestick Chart
● Developed in Japan mid 1600s to trade rice
futures.
● Candles use the same Open, High, Low, &
Close (OHLC) as the Bar Chart.
● The Body being Solid or Hollow denotes if
the Close is Higher or Lower than the Open.
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Low
Open (First)
Close (Last)
High
Close (Last)
Open (First)
Candlestick Chart
● The box between the Open and the Close is
called the “Body” or “Real Body” of the
Candle.
● The line above and beneath the body is the
“Shadow” (sometimes called whiskers).
● Rule of Thumb:
○ A Solid Body is heavy and will sink. Close is
below Open.
○ A Hollow Body is light and will rise. Close is
above Open.
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Swing Charts
● Remove Time and just look at the rise and
fall of prices.
● Many types available:○ Price Swings○ Percent Swings○ Volatility Swings○ Gann Swings
● Each have different rules to determine when
the swing should turn.
● Great for identifying trends.
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2-Day Gann Swing Charts
● Gann called his Swings his Master Trend
Detector. They were his rules for identifying
trend direction.
● Gann would classify bars into:○ Higher○ Lower○ Outside (higher and lower)○ Inside
● A downward 2-day swing requires two higher
bars for the swing to turn up.
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Price Scales
● All charts so far have been Arithmetic.
● Gives an unrealistic display when
comparing to history.
● Changes in Value are more important than
changes in price.
● What Great Depression?
● Arithmetic is not suitable for long-term
charts.
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10,000 - 1,000 == 10% 2,000 - 1,000 == 50%
Price Scales
● We solve this by using a Logarithmic Price
Scale.
● Sometimes called a semi-log scale as we are
not using log on the time scale.
● 2001 & 2008 do not compare to 1929.
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Point & Figure
● Similar to Swings because they take time out
of the picture.
● Most like a Point Swing Chart.
● Define the Box Size and the number of boxes
needed to start a new column.
● In P&F we handle Logarithmic by defining a
Percentage box size.
● P&F will be covered in more detail later.
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Charts
● Line Charts● Bar Charts● Candle Charts● Swing Charts● Arithmetic and Logarithmic● Point & Figure
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