How To Read Charts Like A Pro

Your guide to reading stock charts!

Courtesy of Swing-Trade-Stocks.com
You may distriute this ook !R""LY or use it as #art of a
commercia$ #ackage as $ong as this #age and notices are $eft in #$ace.
The content of this e-%ook is not warranted for correctness& and is
used y the reader at his or her own wi$$. 'o warranty is gi(en for the
content of this e-%ook.
Stock charts courtesy of)
htt#)**stockcharts.com
Disclaimer:
The information contained within this e-ook is for education on$y& and
the authors ho$d no res#onsii$ity to the accuracy or re$iai$ity of the
information contained therein. Past #erformance& is not indicati(e of
future success. A$$ trades in(o$(e risk& which inc$udes $oss of a$$
ca#ita$& and a #rofessiona$ ad(isor shou$d e consu$ted #rior to any
ma+or financia$ decision.
Lets egin...
,
Ta$e -f Contents
.nside...
.ntroduction
Stages& Trends& and /a(es
Chart Ana$ysis
Resources
Ti#s
0
How to Read Stock Charts
.ntroduction
1ake no mistake aout it. Reading charts is an art form that can e
mastered! There are many factors on a chart that go into making trade
decisions.
You ha(e to e a$e to ana$y2e a$$ of these factors and come to a
conc$usion aout whether or not to risk your hard earned money on a
trade. This is what se#arates the no(ice trader from the #rofessiona$.
There are se(era$ things on a chart that make it worthy of trading. The
3uestions that you want to ask yourse$f aout the chart are)
/hat stage is this stock in4
.s this stock in and u#trend or a downtrend4
.s the stock at the eginning& midd$e& or end of the trend4
How strong is the trend4
/here are the trend $ines4
/hat wa(e is this stock in4
/hat do the mo(ing a(erages te$$ me4
/as there a reakout recent$y4
.s the chart 5smooth5 or 5s$o##y54
Are there any chart #atterns4
6
Are there wide range cand$es in the direction of the trend4
Are there any ga#s in the direction of the trend4
Are #rofessiona$s se$$ing strength or uying weakness4
/here are the su##ort and resistance areas4
.s this stock at a !ionacci $e(e$4
/hat does (o$ume te$$ me4
. know it seems $ike a $ot of information to try and kee# track of ut a$$
of the ao(e 3uestions are essentia$ to chart reading mastery! 'ow&
#rint out that #age of 3uestions and kee# it handy ne7t to your
com#uter. 1ake se(era$ co#ies so that you can check off and make
notes as you ana$y2e your ne7t chart. 8o ahead& .9$$ wait:
8ot it #rinted out4 8reat! 'ow you won9t forget anything im#ortant
when it9s time to ana$y2e a chart for your ne7t trade. .n the heat of
att$e& when emotions are running high& it is (ery easy to forget to $ook
for some of the most asic things on a chart. .9(e done it. That is& unti$
. made this $ist!
-k& now $et9s go through the $ist one y one to make sure that you
know how to answer the 3uestions correct$y. ;on9t worry& with
#ractice& you wi$$ not e(en need to think aout these things. .t wi$$
ecome automatic.
You wi$$ e a$e to read charts with $ightning fast s#eed. .n +ust a
cou#$e of seconds you wi$$ e a$e to g$ance at a chart and know a$$
the answers to the 3uestions ao(e.
<
Stages& Trends& and /a(es
;irection
-k& $et9s $ooks at an e7am#$e chart:
'ice chart! This stock roke out through a conso$idation in =u$y and
now it is in a nice strong trend. The green arrow is the day on which
we see this stock. So& what 3uestions can we answer +ust from
g$ancing at this chart4
This stock is in stage two.
You rememer the stages right4 Stage one is a conso$idation& stage
two is an u#trend& stage three is another conso$idation& and stage four
is a downtrend. This stock was in a stage one in =u$y ut at the end of
=u$y& it roke out into a stage two. .t is current$y sti$$ in a stage two.
This stock is in an uptrend.
This is the easy #art. .f a stock is heading toward the u##er right
corner of a chart then it is in an u#trend! !or some reason& this tends
>
to e$ude some traders.
This stock is near the middle or end of the trend.
How do we know that4 The reakout signa$s the start of the trend.
There has a$ready een one significant #u$$ack. Had we ought stock
on the first #u$$ack& then we wou$d ha(e conc$uded that we are at the
eginning of the trend. %ut since this is the second #u$$ack& then we
know that this trend may not $ast much $onger.
This stock is in a strong trend.
The A;? indicator @not shownA is near 6B which we consider to e a
fair$y strong trend. The higher the A;?& the stronger the trend. This
stock is at the $ower trend $ine. You can see y the thick green $ine
that this stock has hit the $ower trend $ine. You can draw the trend
$ines in manua$$y& ut after you ha(e een trading for awhi$e& you wi$$
not need to draw them. You wi$$ e a$e to see them automatica$$y.
This stock is in the fourth wave.
.n "$$iott /a(e theory& a stock goes through > wa(es in an u#trend. .n
the chart ao(e& the first wa(e after the reakout is wa(e ,. The first
#u$$ack is wa(e two& the ne7t wa(e u# to CDE.BB is wa(e three& and
the #u$$ack that we are in now is wa(e four. There is one more wa(e
to go!
Conclusion
'ow we ha(e identified that the #ossi$e future direction of this stock
is u#. 'othing is e(er certain in the stock market! Howe(er& y $ooking
at this chart we can e certain that the #roai$ities are on our side for
a continued mo(e to the u#side.
After you finish reading this ook& go through some charts and try to
identify the (arious factors mentioned ao(e. =ust understanding the
nature of stocks and the different stages& trends and wa(es that a$$
stocks go through wi$$ great$y im#ro(e you trading. Soon& a$$ of this
direction ana$ysis wi$$ ecome second nature. You won9t e(en ha(e to
D
think aout it.
/ere not done yet! 8o on to the ne7t cha#ter:
F
Chart Ana$ysis
Price
Price& as inter#reted y cand$es& is the most im#ortant factor to
consider on a chart. Put away the technica$ indicators. You do not
need them. Technica$ indicators ser(e one #ur#ose G to confuse
no(ice traders! There isn9t anything on a chart that can e $earned
from them. "(erything you need to know is right in front of you in the
cand$es!
-k& $et9s go ack to our chart e7am#$e)
There are some (ery significant things ha##ening on this chart. ;o
you see them4 You wi$$ in a minute.
/e continue answering 3uestions:
The moving averages are lined up.
/e want the ,B S1A ao(e the 6B "1A and we a$so want there to e
#$enty of s#ace in etween the two mo(ing a(erages. This creates the
H
Traders Action Ione @TAIA that we can trade in. .f the mo(ing
a(erages mo(e too c$ose together& then a trading range or asing
#attern wi$$ $ike$y de(e$o#. /e don9t want that!
There was a breakout recently.
This is good! /e want to uy a #u$$ack as c$ose as #ossi$e to a
reakout as we can. /hy4 /e want to know that there is interest in a
stock. Rememer that institutiona$ traders ha(e to accumu$ate shares
o(er time. They can9t uy tons of shares a$$ at once. They ha(e to
uy a $itt$e at a time. %y $ooking for reakouts& we can e7#ect them to
ha(e to uy more in the future. This wi$$ #ro#e$ the stock higher.
This is a smooth chart.
/e don9t want to trade stocks that are whi##ing around e(erywhere!
That is a good way to get sto##ed out on trades. This stock is in a
smooth u#trend that can e traded with confidence& and without fear
of getting shaken out of the trade.
No significant chart patterns.
.n this e7am#$e& there aren9t any significant chart #atterns. This is
fine. You don9t need any kind of a chart #attern $ike a cu# and hand$e
#attern& or a triang$e to trade a stock. You do& howe(er& want to e
a$e to identify them when they are there. This cou$d add some
weight to the setu# and may make us fa(or one trade o(er another.
There are wide range candles in the direction of the trend.
See how at the end of August there are three wide range cand$es that
c$ose near the to# of their range4 There was a$so a wide range cand$e
on the reakout in =u$y. This is (ery significant! .n fact it may e one
of the most significant things on the chart. Stocks tend to mo(e in the
direction of wide range cand$es.
There is one significant gap.
There is on$y one significant ga# to the u#side on the reakout in =u$y.
.dea$$y& we wou$d $ike to see more. A etter case scenario wou$d e if
E
there was a more recent ga#. /hy4 %ecause stocks tend to mo(e in
the direction of ga#s! %e carefu$ though. After three or more ga#s& a
stock can ecome o(erought and may not continue to mo(e forward.
Professionals are buying weakness.
How do we know this4 /e know y $ooking for 5tai$s5 or 5shadows5 at
the ottom of the cand$es. -n the si7th of Se#temer there is a tai$&
and on this day @green arrowA there is a tai$. This is (ery significant!
You want to see that the ig #$ayers are coming in to su##ort the
stock. You want them to #rotect you from any downside risk.
This stock is at support.
This stock has #u$$ed ack to a #rior high made in the midd$e of
August. This is identified y the red*green su##ort $ine drawn on the
chart. /hen a stock #u$$s ack to a #rior high it is known as minor
su##ort. .t is sti$$ a significant su##ort area& +ust not as significant as
if it #u$$ed ack to a #rior $ow.
!or e7am#$e& if the stock #u$$ed ack to
the #rior $ow at CD6.BB @see chartA& then it wou$d e ma+or su##ort.
A$so& notice how the $ower trend $ine and the su##ort $ine con(erge
into one right at today9s cand$e @green arrowA. This is (ery significant!
This increases the strength of the su##ort.
This stock is at a Fibonacci retracement level.
There are three !ionacci retracement $e(e$s that you $ook at) 6H.0J&
>BJ& and D,.HJ. This stock has #u$$ed ack to the 6H.0J $e(e$ @not
shown on the chart ao(eA. You want to trade #u$$acks to this $e(e$
or the >BJ $e(e$. .f it goes down to the D,.HJ $e(e$& it may e
signa$ing weakness. A(oid those stocks. 'ote that this $e(e$ a$so
corres#onds with the su##ort $ine.
olume is showing that there is interest in the stock.
See the ig (o$ume on u# days and the $ower (o$ume on down days4
This is the idea$ scenario ut it isn9t aso$ute$y necessary. . tend to
,B
fa(or $ow (o$ume #u$$acks o(er high (o$ume #u$$acks ut . wi$$ trade
oth. .f a stock is #u$$ing ack on $ow (o$ume& it means that traders
ha(e $ost interest in the stock and things get rea$$y 3uiet. This is
usua$$y when institutiona$ traders come in G when e(eryone forgets
aout the stock!
Conclusion
This conc$udes our ana$ysis of the stock. /e ha(e determined that we
are going to trade this stock!
/ant to see what ha##ens ne7t4
'ice! A$$ of our ana$ysis has #aid off. This stock has successfu$$y
mo(ed in our fa(or and now we can +ust trai$ our sto#s under the $ows
of the cand$es unti$ sto##ed out.
. know it seems $ike a $ot of work went into ana$y2ing this chart ut
what can . say G trading stocks does take some work! .t wi$$&
,,
howe(er& get faster with time. After you $ook at thousands and
thousands of charts in this manner& e(erything wi$$ ecome second
nature. .nstead of it taking minutes to $ook at a chart it wi$$ take
seconds.
. ho#e you ha(e en+oyed reading this $itt$e e-ook. 1ore im#ortant$y&
. ho#e that you can use this information and #rofit from it! After a$$&
that is the goa$ G to make consistent #rofits in the stock market.
.n the ne7t section& you wi$$ find (arious resources around the net to
he$# you with your trading and then some trading ti#s...
,0
Resources
Around the net
Here are some other trading wesites and resources that you can use
to +um# start your trading.
Traders %ookstore G This is my ookstore in association with Traders
Lirary.
.n(esto#edia G This wesite has an enormous co$$ection of artic$es
re$ated to trading stocks.
Chart Patterns G This wesite has descri#tions of chart #atterns and
how to trade them.
Chart Schoo$ G This section on Stockcharts.com is a good resource
for $earning technica$ ana$ysis.
.n(estor/ords G Here you can $ook u# words that you are not fami$iar
with and get the definition.
"$$iott /a(e G This wesite offers a free tutoria$ in "$$iott /a(e theory.
.n(estor!$i7 G !or $ess than C0B ucks a month& you can get stock
market d(d9s de$i(ered to your house. "7ce$$ent $earning too$.
Trade Tracker G This is the #ortfo$io tracker . use to manage my
trades. .t9s ine7#ensi(e and easy to use.
The ;efiniti(e 8uide to Swing Trading G There are a $ot of e-ooks out
there on trading stocks. This is one that . can recommend.
,6
Trading Ti#s
.n Conc$usion...
Rememer that there is a$ways another trader on the other side
of the trade doing the e7act o##osite that you are doing. -n$y
one of you can e right.
/aiting around for the #erfect trade or the #erfect o##ortunity wi$$
guarantee that you ne(er trade stocks.
Trading stocks is aout #roai$ities& '"K"R certainties. You are
not smart enough to #redict& with consistency& what wi$$ come
ne7t.
Con(entiona$ wisdom is usua$$y wrong. Trade against the crowd&
not with them.
1oney& trade& and se$f management has a$ways een and wi$$
a$ways e the ho$y grai$ to trading stocks.
/e$$& that9s aout it for now. This $itt$e tutoria$ wi$$ he$# you $earn to
read charts ut there is sti$$ so much more to $earn!
8ot 3uestions4
Send me an emai$ using the contact form on the wesite.
%est wishes and much success!
,<