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Line Graphs
1. Locate price ranges on the Y-axis and dates on the X-axis. A stock price range is a vertical line that spans from the day's lowest trade price to the highest. Most versions indicate the opening and closing prices as well.
2. Buy stocks in up trends. Recognize an up trend on a line graph as successive dates having price ranges featuring higher highs and higher lows. Avoid stocks with successively lower highs and lower lows, which signify a downtrend.
3. Trade stocks when prices pierce trend lines. Line graphs usually superimpose a 40-day moving average of prices upon current prices. Sell stocks when current prices fall below the 40-day average; buy stocks when they rise above the moving average.
4. Avoid trading when volume is low. Temper your buy and sell decisions to avoid placing trades based on signals given on a low-volume day. A price-volume line graph depicts daily trading volumes at its base. Trading volume is represented by a vertical line -- the taller the line, the higher the volume and the more credence you can give to any trade signals generated for that day.
Point & Figure Charts
5. Identify up trends and downtrends. Point & figure charts are grids that use X's for rising prices and O's for falling prices. Each box in the grid represents a contiguous arbitrary range of prices and is filled with an X or O as a stock price enters a price range. Columns of X's and O's alternate to reflect alternating trends. P&F chart columns show price movements without regard to time periods.
6. Trade shares on upside/downside breakouts. A buy signal is generated by an upside breakout -- when a column of X's rises one box above the top of the previous column of X's. Sell signals arise from downside breakouts between two columns of O's.
7. Trade shares when trend lines are pierced. A resistance trend line connects the tops of descending columns -- buy shares when pierced by X's rising above the line. A support trend line connects the bottoms of ascending columns -- sell shares when pierced by O's falling below the line.
8. Take profits when a P&F chart reaches a price objective. Price objectives are horizontal lines you add to a P&F chart that indicate a price at which you would be willing to sell your stock. Prudent traders take some or all of their profits when price objectives are reached.
Candlestick Charts
9. Identify the trading range of a stock. A candlestick is an image depicting a single time period of a stock's price trading range. It is composed of a rectangular 'candle body' with one top and one bottom vertical wick -- called 'shadows' -- protruding from the body. The body top and bottom represent a stock's opening and closing prices. The tip of a top shadow is the stock's high price for the day; the tip of a bottom shadow shows the daily low. If a stock closes higher for the day, the body is colored green; otherwise it is red.
10. Buy stocks when candlesticks are indicating higher prices -- a condition termed 'bullishness.' A tall body means that buying or selling pressure was lopsided. Bullishness is depicted by a tall green body or by a body with no top shadow --a stock closing at its high. Avoid stocks depicted by red bodies or shadowless bottoms.
11. Sell stocks when candlesticks break support. Support levels bound the range of candlestick shadow bottoms for a given time period. When a stock price pierces a support level, a downward price trend may unfold, providing incentive to sell the stock.