The Anatomy of a Chart

The Adult Human Skeleton has 206 bones – it takes a lot of parts to keep us all together, flexible, with the ability to do amazing things like run and jump.

The same holds true with a stock chart in that there are a lot of parts to dissect, to gain a better understanding of how price moves from day-to-day. One approach I take is start with a basic Area chart of a stock, with just a few moving averages displayed, and just study the trend of price.

For this exercise, I bring you the Daily Area chart of ROST (Ross Stores):

The chart above is one that all can easily read, a nice steady move up to the current price of $59.81 from the November 2011 lows. Now I will add some simple Trend Lines (parallel to each other) to start the process of enhancing the chart:

What a nice up channel the past 6 months, a real beauty. In this particular excercise, I just stop right here – no need to add anything else to the chart as this provides enough info to put together a trade setup in my opinion.

Bring on Monday.

One thought on “The Anatomy of a Chart

Leave a Reply

Your email address will not be published.