Introduction 1
About This Book 1
Foolish Assumptions 2
Icons Used in This Book 2
Beyond the Book 3
Where to Go from Here 3
Part 1: Getting Started with Stock Charts5
Chapter 1: Brushing Up on Stock Charting Basics 7
Minimizing the Emotional Roller Coaster of Investing 7
Viewing Stocks from Varying Perspectives 8
Discovering All the Tools You Can Use with Your Charts 8
Getting Organized with Your Charts 9
Customizing Your Charts 10
Putting Everything Together 10
Chapter 2: Using Charts to Minimize Your Emotional Roller Coaster 11
Getting Ready for the Emotions of Owning a Stock 11
Understanding a few market basics 12
Leveling the playing field 14
Building a Chart to Track and Control Emotions 15
Checking Out Index Charts 17
Indexes around the world 18
Commodity indexes 19
The S&P 500 20
Defining Trends 20
Part 2: Viewing the Money Trail Through Different Lenses 23
Chapter 3: Focusing on Chart Settings 25
Choosing Chart Attributes 26
Starting with the time period, range, and spacing 26
Defining the price display 29
Displaying volume and toggles 33
Setting Overlays 34
Selecting Indicators 36
Common indicators 36
Volume and price as indicators 37
Chapter 4: Burning the Candle at Both Ends with Candlestick Charts 39
Deciphering the Parts of a Candlestick Chart 40
The candle body 41
Shadows on a hollow candle 42
Shadows on a filled candle 43
Windows 44
Introducing Color onto a Candlestick Chart 45
Crafting Your Chart 46
Reading and Using Your Chart to Make Decisions 48
Knowing when candles matter 48
Buying based on bullish candlestick patterns 49
Chapter 5: Spotting Differences with Bar Charts 51
Beginning with Bar Chart Basics 51
Price bar components 51
Different types of bar charts 52
Building a Bar Chart from the Ground Up 54
Putting a Bar Chart to Work 55
Gaps 55
Short bars versus long bars 56
Trading ranges, support, resistance, and breakout 56
Chapter 6: Seeing Whats Trending with Line Charts 59
What Is a Line Chart? 59
Making a Line Chart the Easy Way 61
Reading and Using Your Chart Line by Line 62
Adding support and resistance lines 63
Knowing when lines matter 64
Chapter 7: Getting the Lay of the Land with Area Charts 67
Comparing Area Charts to Line Charts 67
Making an Area Chart You Can Show Off 69
Strengthening or dimming the area display 69
Trying different colors 70
Adding color lines to emphasize change 70
Looking at legends and labels 71
Adding a Personal Touch with Styles 71
Knowing When Area Charts Matter 72
Part 3: Using Chart Tools for Decision Making 75
Chapter 8: Charting Different Time Periods 77
Converting Candlestick Charts to Different Periods 78
60-minute to daily candle display 78
Daily to weekly candle display 79
Daily to monthly candle display 79
Weekly to monthly candle display 80
Converting Bar Charts to Different Periods 81
60-minute to daily bar charts 81
Daily to weekly bar charts 81
Weekly to monthly bar charts 82
Converting Line and Area Charts to Different Periods 83
Taking It One Day at a Time with Daily Charts 84
Looking at the daily price movement in context 84
Using a range of one year (or more) with a daily chart 86
Examining market capitalization with daily charts 88
Embracing Short-Term Thinking with 60-Minute Charts 91
Highlighting intraday price action 92
Using 60-minute charts for index watching 92
Seeing the Big Picture with Weekly Charts 94
Weekly bar charts 94
Weekly line charts 95
The big benefits of weekly analysis 95
Knowing When a Monthly Chart Can Come in Handy 96
Recognizing major long-term lows and highs 96
Analyzing investor behavior 97
Picking the Right Chart for the Right Range 98
Shifting Your Focus to Closing Prices 99
Chapter 9: Reading a Price Chart 103
Running with Bulls and Sleeping with Bears: Uptrends and Downtrends 104
Recognizing an uptrend 104
Spotting a downtrend 105
Bucking the Trend: When a Stock Isnt Trending 107
Looking at consolidation basics 107
Recognizing different periods of consolidation on a chart 108
Reading investor behavior during consolidation 109
Leveling Out: Its All about the Base 110
Types of bases 110
The start of an uptrend from a base 114
Reaching the Top: Muffins, Spires, or Something Else? 115
The rounded top 116
The spire 117
The parabolic run 118
The double top 119
The range trading top 120
Scaling for Profit: Its Only Money 121
Arithmetic scaling 121
Logarithmic scaling 123
Scaling guidelines 123
Chapter 10: Harnessing the Power of Overlays 125
Keeping Track of Moving Averages 126
Plotting a moving average 126
Looking at moving averages for different periods 129
Examining the uses and benefits of moving averages 133
Getting into the Groove with Channel Investing 135
Keltner channels 135
Bollinger Bands 139
Moving average envelopes 140
Finding Your Sweet Spot between Horizontal Support and Resistance 142
Chapter 11: Using Indicators to Facilitate Chart Analysis 145
Beginning with Indicator Basics 145
Divergence 146
Bounded and unbounded indicators 147
Rolling with Momentum Indicators 147
Moving average convergence divergence indicator (MACD) 148
Momentum displays that look like the MACD 150
Relative strength index (RSI) 153
Stochastics 158
Using Volume with Price 161
Chaikin money flow (CMF) 162
Money flow index (MFI) 163
On-balance volume (OBV) 165
Accumulation distribution (ACCUM/DIST) 166
Determining How Many Indicators to Use on One Chart 167
Chapter 12: Making Sense of Relative Strength Indicators 169
Relative Strength Investing Basics: Seeking Better-Performing Stocks 170
Sectors and industries 170
What makes a strong stock 171
Four things to know in relative strength investing 172
Measuring a Stocks Relative Strength to the S&P 500, a Sector, and an Industry 172
Creating a ratio chart 173
Interpreting a ratio chart 175
Making broader comparisons 176
Ranking Stocks with SCTR 176
Introducing technical ranking 176
Plotting and interpreting the SCTR indicator 178
Looking at the components of the SCTR indicator 179
Breaking down peer groups for technical ranking 181
Understanding market movement in the rankings 181
Protecting your capital with SCTR 183
Using SCTR for base breakouts 185
Checking Out Performance Charts 186
Using Relative Rotation Graphs (RRG) 188
Part 4: Getting Organized and Managing Stock Trends 191
Chapter 13: Organizing Charts into Industry or Sector Groups 193
Recognizing the Importance of Sectors and Industry Groups 194
Creating and Populating ChartLists 195
Creating a list with a name and a number 195
Populating a list with one or more charts 197
Building lists with industry groups or sectors 198
Using the Number in Sorted Order button 198
Removing numbers from stocks inside a list 200
Organizing Your ChartLists 201
Interesting charts 202
Temporary scan lists 202
SCTR list 203
Watch list 203
Current open positions 203
Closed trades 203
Sector or industry lists 203
ETF list 204
Market overview 204
Index lists 204
Chapter 14: Keeping Track of Whats Going On 205
Making a Watch List 206
Surveying predefined scans 206
Saving scans to ChartLists 208
Creating and Using Your Three Main ChartLists 209
Deciding which stocks to move 210
Moving stocks into your three lists 211
Setting Alerts 212
Chapter 15: Conducting Breadth Analysis 215
Investigating Bullish Percent Indexes 216
Understanding how a buy or sell signal for a single stock is recorded 217
Interpreting the results for groups of stocks 217
Studying the Percentage of Stocks above the 200 DMA 220
Looking at the basic chart 220
Comparing breadth information 220
Reviewing the Breadth of Different Exchanges 222
The NASDAQ composite breadth 222
The New York Stock Exchange composite breadth 225
The Toronto Stock Exchange breadth 226
Chapter 16: A Quick Check of the Weeks Action 227
Counting the Days 227
Up days 228
Down days 228
Inside and outside days 229
Responding to Weird Price Action 230
Volume and price bar extremes 230
Outside reversal dates on weekly charts 231
Tracking Key Events 232
Options expiration days 233
Fed meeting dates 234
Spotting a Break of Support on Indexes 235
Part 5: Personalizing Your Stock Charts with Styles 237
Chapter 17: Customizing Candlestick Charts 239
Picking Your Personal Candlestick Indicators 240
Daily candlestick charts 240
Weekly candlestick charts 242
Saving Your Personal Style 244
Creating your default ChartStyle setting 244
Saving multiple ChartStyles 245
Trading Using a Candlestick Chart with Your Settings 246
Trading a daily candlestick chart with annotations 246
Trading a weekly candlestick chart 250
Sharing Your Customized Charts 251
Chapter 18: Fine-Tuning Your Bar Charts 253
Adjusting Bar Chart Settings to Your Liking 254
Colors 254
Overlays 255
Indicators 255
Special settings for weekly bar charts 256
Trading Using a Daily Bar Chart with Your Settings 257
Trading Using a Weekly Bar Chart with Your Settings 259
Chapter 19: Adjusting Your Line and Area Charts 263
Creating a Custom Weekly Line Chart 264
Developing Your Own Monthly Line Chart 266
Selecting your indicators 267
Saving your monthly line chart 268
Trading a monthly line chart 269
Setting Up a Specialized Monthly Area Chart 270
Part 6: Putting Your Stock Charting Expertise to Work 273
Chapter 20: Using Your Charts to Inform Your Buy, Hold, and Sell Decisions275
Separating the Strong from the Weak 275
Sector summary 276
Industry summary 279
Knowing When to Hold Em and When to Fold Em 279
Checking the speed of movement 280
Looking at typical support levels 280
Gauging gains 280
Following technical clues to help manage your trades 281
Thinking about trading styles 283
Considering big picture trends 284
Selling Stocks Before They Head South 284
Chandelier exits 284
Parabolic stop and reverse 285
Chapter 21: Putting It All Together 287
Gauging the Markets Direction 288
Market tops 288
Leading sectors 290
Market breadth 294
Position of the indexes compared to the 40-week moving average 295
Narrowing Your Focus to Certain Sectors 296
Choosing your fishing holes: Sectors with promise 297
Investing in different sectors for ballast 298
Using SCTR reports 298
Considering income stream investing 299
Using Targeted Scans 299
Working with Price Displays, Overlays, and Indicators 302
Price displays 302
Overlays and indicators 303
SCTR and the relative strength rankings 303
Taking Away Lessons from Your Wins and Losses 304
Journaling about the market and your trading 304
Tracking and analyzing your winners and losers 305
Continuing to buy winners 306
Refraining from holding losers 307
Part 7: The Part of Tens 309
Chapter 22: Ten Common Investing Mistakes and How to Avoid Them 311
Trying to Fight the Market Instead of Following It 311
Buying a Loser 312
Chasing a 2535 Percent Off Sale in Great Companies 313
Falling for a 75 Percent Off Sale 314
Forgetting That Commodity Stocks Are Very Volatile 314
Buying a Story Instead of a Stock 315
Investing in a Sick Sector 316
Selling a Winner Too Soon 316
Continuously Avoiding Whats Worked 317
Not Buying Stocks in Falling Markets 318
Chapter 23: Ten Tips for Cashing In on Tomorrows Amazingly Great Stock 319
Being Prepared for Big Moves in a Short Time 319
Understanding That You Dont Have to Be First to Buy 320
Waiting on the Big-Name IPOs 321
Seeing Huge Gaps on Earnings 321
Watching for Crisis in a Stock 322
Using Volatility to Warn the End Is Near 322
Measuring Volatility with the Average True Range 323
Realizing That the SCTR Wont Help Find Exits 323
Working with Bollinger Bands 324
Using the U.S Dollar as a Guide 324
Index 327
