IN THIS CHAPTER

Setting custom styles for your bar charts

Trading with your daily and weekly bar chart styles

Bar charts — the topic of this chapter — give you the same information as candlestick charts (see Chapters 4 and 17), but the information provided is a little more discreet. The extreme tails seem to be emphasized more than the candle bodies.

Bar charts, which we introduce in Chapter 5, are used to recognize longer stock patterns, so you will find that different indicators are more helpful when you plan to hold an asset for a longer period of time. On a bar chart, you tend to look for consolidations rather than the information on a single candle, as you would on a candlestick chart.

On bar charts, your eyes are drawn to areas of consolidation rather than individual price bars. You’re more likely to use larger patterns, like new 52-week highs, prices around Keltner channels, or moving average crossover strategies with bar charts (Chapter 10 has more about these patterns). You can still use candlesticks with these types of patterns, but the candlestick information is based on one-, two-, or three-candle patterns, not larger patterns.

By using Keltner channels with a bar chart, you are less likely to be concerned with the individual bar information. There are also color-coding opportunities using one, two, or three colors with bar charts, if you choose to use one of these tools. In this chapter, we review some of the more popular tools you may want to add to your bar chart styles. (For more information on specific tools, please review Parts 2 and 3.)

Adjusting Bar Chart Settings to Your Liking

In this section, we discuss custom settings you can use for daily bar charts; we also talk about a few settings for weekly bar charts. If you want to review basic information about the settings panel for bar charts, check out Chapter 5.

Saving your bar chart style is the same as saving styles for candlestick charts; we review the process in Chapter 17. There, we also show you how to personalize your charts with annotations.

Indicators

You have a variety of indicators to choose from when you work with daily bar charts. Figure 18-1, which shows the stock of Adobe Systems (ADBE), has a few examples:

• The chart shows the SCTR ranking indicator on the top. Here, the SCTR is 93.5 and very strong. (SCTR stands for StockCharts technical ranking; see Chapter 12 for details.)
• The relative strength (see Chapter 12) compared to the S&P 500 is shown as a shaded area chart and will react sooner than the SCTR for potential selling information.
• The price chart is clean with a 200-day moving average.
• The volume indicator is color coded and has a moving average for the volume. (Chapter 3 introduces volume indicators.)
• The moving average convergence divergence indicator (MACD; see Chapter 11) shows the momentum of the stock. This setup is for trading breakouts above previous resistance.

Trading Using a Daily Bar Chart with Your Settings

Figure 18-1 (shown earlier in this chapter) is a chart for someone who wants to trade breakouts using relative strength. Breakouts occur when the price moves above previous highs. That can be a breakout above one-month, three-month, six-month, or annual highs. It depends on your trading strategy. A common place to look for breakouts is to watch stocks that move above 75 on the SCTR. When that also coincides with a breakout to new highs, it can be an indication of a good trading opportunity.

Here are some explanations of how to trade with the help of custom daily bar charts, using Figure 18-1 as an example (the stock shown is Adobe, or ADBE):

• The SCTR (StockCharts technical ranking; see Chapter 12), the indicator at the top, shows ADBE’s ranking against other stocks in its peer group. Adobe is a large-cap stock, and the price action is behaving better than 93 percent of the stocks. The move above 75 in January was a timely signal as the stock was also breaking out to new highs around $110.

• The relative Strength indicator (see Chapter 12) below SCTR shows a comparison to the S&P 500 ($SPX). You can see that ADBE was starting to improve and was not quite at three-month highs. The S&P 500 was moving up quickly from the November 2016 lows, and Adobe was lagging until January 2017. In January, it started to improve and was almost at new three-month highs.

  If Adobe starts to make new two-month lows in relative strength, it is a good time to add protection with options or sell some of the position to lock in some gains. When a big uptrend stops, it usually needs time to consolidate the existing gains. That change in the relative strength trend can be a great indicator.

• Looking at the price section next, you can see that price action is smooth until June; then it starts to get choppy. This usually happens around a final high in the price.

  Large institutions start to sell part of their position to lock in gains, which eventually caps the stock move for a period of time. Institutional investors won’t allow one stock to dominate a portfolio. The investor might start a position in a stock at 2 percent. If the stock price improves, the investor may add to the position. Some funds may allow a 5 percent weighting. If the stock starts to dominate the portfolio, the institutional investors sell to lock in gains and limit the size of the stock value within the portfolio. This becomes resistance as sellers lock in gains and the stock move stalls.

  Strong long-term stocks commonly find support around the 200 daily moving average. As long as the 200 daily moving average is trending up, the big trend is higher.

• The volume section shows the number of shares traded each day.
• The moving average convergence divergence indicator (MACD; see Chapter 11) is a momentum indicator. When it is above zero, the stock is behaving well.

You never want to sell a winner too early, so using stock options when strong technical conditions weaken can help protect your portfolio. June is a good example on the ADBE chart. If in a few months down the road the price resumes its uptrend, you still own the stock. Conversely, if price has broken down hard, you’re protected by your options and you can sell the stock. At that point, you want to look for a new stock to buy and start the cycle again.

For an exit on the stock position shown in Figure 18-1, initially you would likely set a stop for downside protection at $110. Keep moving your stop up. The August lows of $142.50 look like the most recent place for a stop. As long as that holds, look for breakdowns in relative strength and a breakdown in momentum, which are good reasons to exit from a long uptrend. Nobody ever went broke taking profits.

Figure 18-2 shows the settings to re-create the daily bar chart. In the Chart Attributes area, we chose a daily period for a range of one year. The type of chart is OHLC Bars with black as the down color and auto as the up color. The overlays chosen were simple moving average and events, such as dividends, stock splits, and the like. The indicators chosen were SCTR line, price, volume, and MACD.

The most important part of trading is continuous learning, and some people like to print out their charts for review. Figure 18-2 shows a Print link beside the Annotate tool on the top line (you need to sign in to StockCharts.com to see this link). This works very well and will scale the chart to fit on the paper in landscape or page view. You’ll find it is much better than working through the scaling tools on your computer. By keeping all of your completed trades in a ChartList (introduced in Chapter 13), you can access the same chart long after you sell and compare it with the paper version.

Trading Using a Weekly Bar Chart with Your Settings

When trading using a weekly bar chart, you want to look at different indicators. Two helpful indicators are the SCTR line and the Chaikin money flow (CMF). Figure 18-3, showing the stock of Newmont Mining (NEM), has an SCTR line on it to keep you focused on stocks with improving performance. The SCTR (see Chapter 12) has just moved above the 75 level, indicating the stock is starting to outperform a large majority of its peers. On the same chart, you can see that the CMF (see Chapter 11) has recently moved into positive territory. Looking left on the chart, positive CMF is usually bullish.

The price panel shows the stock pushing above resistance. This particular chart is shown on a Monday, so the price bar has the rest of the week to continue or reverse the breakout. Traders will buy this on the breakout and then sell right away if the breakout does not hold up. The three moving averages (introduced in Chapter 10) can be used as a strategy with price bars as well. The moving average crossovers actually align with the short-, medium-, and long-term moving averages in the proper sort order on the right side of the chart. The zoom panel on the right shows the moving averages from a close-up viewpoint.

If the last price bar has a green shading, the market is open and the price is real-time from the main exchange for members of StockCharts.com. If the last price bar is shaded yellow, the price is delayed 15 minutes for non-members. Members seeing a yellow shaded bar are seeing BATS (Better Alternative Trading System) data, so the price is similar but may not be identical to the NYSE/NASDAQ real-time data. If there is no shading, the market is closed. These variances can be seen on the StockCharts.com website.

Non-members see prices delayed 15 minutes. StockCharts.com members get BATS real-time data for the United States and delayed data for all other markets. BATS is an electronic exchange based in Kansas City and offers its trading data for free. Members also have the option of adding official real-time data for the United States, Canada, the United Kingdom, and India for an additional monthly cost.

The volume panel shows that the lowest volume on the chart happened just a few weeks before the final low. The highest volume on the chart was associated with a big breakout. This may happen again as price breaks above resistance, but it is still early in the week. The straight line is to compare the volume setup with historical levels.

Lastly, the PPO is improving with a slight uptrend. It has recently moved into positive territory. These conditions all align to suggest that price may be starting a strong advance. From a trading perspective, it’s very helpful when all the signals align.

Figure 18-4 shows the settings for the weekly bar chart. In the Chart Attributes area, we chose a weekly period and a three-year range. We chose three types of moving averages (10, 20, and 40) and designated a different color for each. We also chose a horizontal line at 37.5. Indicators chosen were the SCTR line, the Chaikin money flow (CMF), volume, and the percentage price oscillator (PPO).