Understanding Price Graphs

[Justin]

Provided by Clearstation

Graphs facilitate quick assessment by displaying important data clearly. The top chart is the price graph. This graph charts a stock's price over time. The bars across the top of the price graph are trending bars (green for uptrends, red for downtrends). Generally, you want to go long stocks whose graphs show predominantly green bars and short (or avoid) stocks where red predominates.* Price Bars The price bars are usually drawn in red. The bottom of the price bar marks the low for that day, and the top indicates the high. On the right side of the bar, a tiny horizontal black dash marks the closing price. It's bullish if the closing price is near the high of the day, and bearish if the closing price is down toward the day's low. * 52-week High Every now and then you'll see a blue bar instead of a red one. A blue bar indicates that the stock reached a 52-week record price high that day.*The 50-day exponential moving average (EMA) is overlayed in purple. The 13-day EMA is overlayed in green. These lines identify the overall direction of the price of a stock. The most important thing to note is whether prices are above or below these two moving averages. A 200-day EMA is not standard, but is overlayed in yellow when you click the button on the lower right. * Bollinger BandsBollinger Bands, created by John Bollinger, are a type of envelope (or trading band) plotted at standard deviation levels above and below a moving average. Because standard deviation measures volatility, the bands widen during volatile markets and contract during calmer periods. In Achelis' Technical Analysis from A to Z (Chicago: Irwin, 1995), Bollinger has this to say about his indicator: - Sharp price changes tend to occur after the bands tighten, after volatility lessens. -When prices move outside the bands, a continuation of the current trend is implied. -Bottoms and tops made outside the bands followed by bottoms and tops made inside the bands call for reversals in the trend. -A move that originates at one band tends to go all the way to the other band. This observation is useful when projecting price targets.Bollinger Bands, displayed in two bands plotted at standard deviation levels above and below a moving average, provide a view of the current trading range. They can be used with other indicators to determine when to buy or sell. * Parabolic SARThe Parabolic Time/Price System, developed by Welles Wilder, is used to set price stops and is usually referred to as the stop-and-reversal (SAR) indicator. Once a trade is initiated using Parabolic SAR, a protective stop order has also been initiated. The stop is a function both of price and of time. The stop never backs up; it moves only incrementally on a daily basis in the direction the trade was initiated. This ties into one very good rule: "move your stops only in the direction of the trade and never against it" (Elder, Trading For a Living).Some technical analysts believe that the Parabolic SAR provides excellent exit points. They use this indicator to close long positions when the price falls below the SAR and close short positions when the price rises above the SAR. Indecision is reduced using this indicator because it doesn't allow investors to stay in losing positions.The Parabolic SAR is most effective when the markets are trending; when the markets are flat, Parabolic SAR is susceptible to being whipsawed, a clear sign that the timing is wrong. This concept is explained in Wilder's book, New Concepts in Technical Trading Systems (Trend Research, 1978)

[bigroof]

can someone explain the phenomena where the graph has space between the closing price of one day and the opening price of the next day, either up or down

[Justin]

Yep, these "Gaps" commonly referred to as "gap up" or "gap down" show after hours trading within the stock. Trading occurs after hours pretty much anywhere you look, thats why you hardly ever see the closing price/opening price exactly the same. The gaps usually occur when something significant in the fundamentals change.

Think supply and demand on steroids.

[bigroof]

here are some good links to understand gaps

Gaps and Gap Analysis

After-Hours Trading

thanks for the replys I recieved, now I understand gaps a lot better

[npg]

Gaps. What a great post!

URBN is a good stock to illustrate them IMO. On that one, a knowledge of price gaps can give you the edge if you combine them with the 3 tools (3T).