Trading for Dummies® 2nd Edition

Chapter 9. Reading Bar Charts Is Easy (Really)

In This Chapter

• Creating a bar chart

• Deciphering simple visual patterns

• Distinguishing between trends and trading ranges

• Pinpointing transitions from trading range to trend

Stock charts come in many flavors. Some prominent ones include point-and-figure charts, candlestick charts, and the ever-popular bar charts, which are used throughout this book.

Bar charts are easy to create, interpret, and maintain. Furthermore, charting tools and analysis techniques for bar charts apply to stocks, bonds, options, indexes, and futures, and are applicable across any time frame in which you may want to trade. In addition, most chart patterns work for long (buy first, sell later) and short (sell first, buy later) trades.

This chapter shows you how to draw price charts for a single stock, for an index such as the S&P 500 or NASDAQ Composite, or for an exchange-traded fund, and recognize simple single-day trading patterns. In addition, you find out how to identify trends and trading ranges and how to look for key transition points that often lead to good trading opportunities. Charting is a visual methodology, so you'll find many example charts used throughout this chapter. Examine them carefully. You'll want to quickly identify the patterns we describe here when evaluating charts for your own trading.

Creating a Price Chart

Traders used to create their charts by hand. Today, however, many charting alternatives and options are available, including easy-to-use ...