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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