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S2O Stock Analyzer Tutorials: Price Charts

type: video (mp4); length: 8:34; watch on YouTube.

Demonstrates basic rules of how to read a candlestick chart, long and short term moving averages, stochastic, MACD and relative strength (RS) charts. Explains how bull or bear market condition is computed.

Transcript

In this video I will cover some basics of the stock charts available in Stock Analyzer. I'm going to use Apple stock as an example.

As you can see stock2own shows price charts to registered users only. Not a big deal, I'm logging in and here we are.

Stock2own' Technical Indicators Alert

Price charts and all sorts of technical indicators are used to determine the best time to buy or sell a particular instrument or stock. Stock2own not only allows you to see price charts, but also lets ou combine several technical indicators into one alert (it is called TI Alert - technical indicators alert).

This Alert is presented in a form of a simple word like "Buy" or "Sell" and shown on the left side menu section, for easy access. Bull or Bear image indicates the stage a stock in. Background color shows if latest price change was positive (green background) or negative (red background).

Basic Functionality

There are several charts available on the screen and we will go through all of them in a second. Now I just want to remind you about some basic functionality available.

First, if you think that the chart is too busy, you can always hide some lines by clicking on a line name in the legend section. To show hidden lines again all you need to do is click on the line name one more time.

Second, you can change the date range for any chart. Usually, the shortest date range is 1 month and the longest is 1 year. Most of the time it should cover all we need and the switch between those modes is just one click in the date range menu.

Third, you can highlight lines... or any single point by just pointing to it with your mouse.

Also keep in mind that if the charts combine data with more than one dimension, it will show more than one vertical axe. Price chart is a good example - you can see a price axe on the left and a volume axe on the right.

OK, we got it covered. Let's start.

Daily Price Chart

The first chart is a daily price chart. It contains a lot of information and therefore takes the most space. The base of this chart is price and volume.

Volume is presented in the bottom in the form of a simple bar chart with a 30 day moving average. It is especially important for me, because I like to use Sten Weinstein's advice and am always looking for a volume increase to confirm price break (If you are interested you can find all books mentioned in this video in the Market section, menu Books).

Price is presented in the form of a candlestick chart, which allows it to show several characteristics of the daily price in one figure.

Candlestick Price Chart

Candlesticks are usually composed of the body (black or white), and an upper and a lower shadow (wick): the area between the open and the close is called the real body, price excursions above and below the real body are called shadows.

The wick illustrates the highest and lowest traded prices of a security during the time interval represented. The body illustrates the opening and closing trades. If the security closed higher than it opened, the body is white or unfilled, with the opening price at the bottom of the body and the closing price at the top. If the security closed lower than it opened, the body is black, with the opening price at the top and the closing price at the bottom. A candlestick need not have either a body or a wick.

Not only is a single candlestick very informative, but candlestick shapes and patterns could give you extra information. If you want to know more about patterns, check The Theory section or just click on the link at the bottom.

Moving Averages

Along with a price chart, you can see there are 5 moving average lines:

  • 10 and 30 days moving averages are considered to be short term indicators
  • 50 day moving average - middle term indicator
  • 150 and 200 days moving averages are long term indicators - shown as dashed lines

Some people are focusing on long term indicators (200 days moving average is probably the most popular one), others are using a combination. Depending on my goals, individual stock and market condition, I may use either short or long term moving averages, but most of the time I use a combination.

For instance, the market stage is defined in stock2own.com as a crossover of middle-term and long term moving averages. In other words, stock is considered to be in a bull stage if the stock price is above the 50 day moving average line AND the 50 day moving average line is above the 200 day moving average line.

Weekly Price Chart

The next chart is a weekly price chart. It has only weekly prices presented in a form of candlesticks; 30 week moving average and a volume.

The weekly chart is very similar to the daily chart except each candlestick presents price changes for the whole week - it shows high, low, open and close prices for a week.

I always check weekly chart because it helps me identify long term trend.

Slow Stochastic Chart

The is a slow stochastic chart. The idea behind this indicator is that the prices tend to close near their past highs in bull markets, and near their lows in bear markets.

Basic rules here are simple: if the blue line is above the red one it is a positive sign. Crossovers usually can be treated as action signals - when the blue line crosses up the red line - it is a "Buy"; when the blue line crosses down the red line - "Sell".

If the blue line moves above the 70th level, the stock can be considered overbought. If it moves below the 30th level - oversold. Both areas are highlighted on the chart with a different color.

MACD

This is a MACD. It stands for Moving Average Convergence / Divergence.

This chart consists of two lines: blue and red and a bar chart which is called a Histogram (Divergence is on the chart legend). As you can see line crosses are always in sync with bar chart crossings of 0 line.

Crossovers usually can be treated as action signals - when the blue line crosses up the red line or the histogram starts to form a mountain above the 0 line, this is a "Buy" signal. When the blue line crosses down the red line or the histogram starts to form a valley and dive below the zero line - "Sell".

MACD can also give you a hint on a long term trend. If the blue line is above the 0 line, the long term trend is positive or going up. If the blue line is below the 0 line, the long term trend is negative. You can also consider the line direction and slope to determine trend direction and speed.

Relative Strength and Relative Strength Index

The last chart shows Relative Strength and Relative Strength Index.

The Relative Strength Index (RSI) is intended to chart the current and historical strength or weakness of a stock or market based on the closing prices of a recent trading period.

Just like the stochastic chart, the RSI indicator has an upper line, typically at 70 (overbought area), and a lower line at 30 (oversold area).

It also has a mid-line at 50. If the relative strength index is below 50, it generally means that the stock's losses are greater than the gains. When the relative strength index is above 50, it generally means that the gains are greater than the losses.

If you use this indicator in conjunction with the price chart, you can get even more information from it. For instance, many investors believe that divergence between RSI and price action is a very strong indication that a market turning point is imminent. Bearish divergence occurs when price makes a new high but the RSI makes a lower high, thus failing to confirm. Bullish divergence occurs when price makes a new low but RSI makes a higher low.

On the same chart you can see The relative Strength chart.

The Relative Strength is a measure of a price trend that indicates how a stock is performing relative to other stocks in its industry. It is calculated dividing the price performance of a stock by the price performance of an appropriate index for the same time period.

Stock2own automatically selects an index to compare with: for US stocks it is the S&P 500 index, for euro stocks it is the FTSE and NIKKEI is used for the Asian market.

Index charts are also presented here as dashed lines, so you can compare the visual performance of your stock with the market performance.

When the RS chart is above the 50 level line, it means the stock is performing better than the market (actually, better than the corresponding index). If the RS chart is below the 50 line, it means that the stock is performing worse than the market.

Chart Description

At the end of this video I want to remind you that there are charts descriptions in plain words on top of every chart. You may find it useful if you just started to read charts. I like those explanations because they come with a bull-bear image and colorful indicators, which makes it easy to get an idea of what is going on with just one quick look.

There is also, of course, a list of charts with links to detailed information for each of them at the bottom. There are man examples and if you are just starting, please, do not hesitate to click on those links and read about charts and how to use them.

At the very end, I want to remind you that we will always be happy to hear from you if you have any questions or a suggestions. Please, use the "Contact Us" link which is available on every single page at the top of the screen.

Thank you.