How I Set Up My Charts

Sep 13, 2008: 2:29 PM CST

A number of readers have asked me to define what chart settings and indicators I use and I thought I should post regarding this information.

I trade with TradeStation and do all trading through them, but for the blog, I enjoy posting charts from StockCharts.com because of the professional look and feel of their charts, and because they’re much more commonly seen than TradeStation charts, which can be endlessly customized to your needs.  I started out years ago with StockCharts and have become accustomed with their format and style, and so I find it much easier to teach or show examples using their charts so that is why I post public charts using their format instead of TradeStation.

Here is an example of the settings I use on the charts I post:

I start off selecting CandleStick charts as my preferred way to view the data, and then overlay the following moving averages:

20 period Exponential
50 period Exponential
200 period Simple

Exponential averages track the more recent data quicker (by their calculation) and I’ve found most ‘tests’ or pullbacks are better captured using exponential than simple moving averages, though this point is certainly up for debate, as others swear by simple moving averages, or even triangulated or linear averages.

I also overlay volume and set ‘colored bars’ which gives the red and white tint to the candles for ease of viewing.

The background is the “Mohave” setting, though you can change this setting to fit your needs easier.  If you look at hundreds or thousands of charts, you generally want the image to be as appealing to you as possible.  I avoid black and white charts as much as possible because honestly I don’t find it as fun as viewing charts that have more aesthetic visual appeal – you’ll sustain motivation if you find the charts appealing and interesting.

I also overlay the Bollinger Bands (default, 20 period setting), though you may have difficulty seeing them and that’s also the point.  I don’t want the Bollinger Bands to confuse me for a moving average, or to saturate the data with too many lines – data clarity is paramount.  I use Bollinger Bands to assess the volatility environment as outlaid in the “Range Expansion/Contraction” price principle.  Also, it’s helpful to know if price is at or above a Band extreme (particularly if you see a momentum divergence or other form of resistance/support).  I use the “Area” setting and dim the opacity of the Bands so I can see where price is in the Band area – Bands represent 2 standard deviations away from a 20 period moving average.

What is that strange oscillator in the bottom panel? It’s a common and appropriate question, and the oscillator is commonly known as the “3/10 Oscillator” but it’s really a simple, customized MACD indicator.

To convert the MACD into the “3/10,” simply change the three numbers in the parameters (default 12, 26, 9) to 3, 10, 16 respectively.  Discussing how to use this oscillator is far beyond this post, and there are lengthy articles out there that describe how to use this indicator effectively.

Essentially, the Black line represents the difference in a 3 period and 10 period Exponential Moving average (for TradeStation, I use Simple Moving averages for the 3 and 10 period, but that’s not possible in StockCharts).  The oscillator is unbounded, and pivots about the zero line.  The Red (’signal’) line is a 16 period average of the Black “MACD” Line, which serves as a trend indicator (and roughly parallels the Black line on a higher time frame).

Although I do more with this oscillator, I tend to frame my discussions in terms of “Momentum” and describe this simply as a “Momentum Oscillator,” which it is.  In truth, the 3/10 is a trend indicator, momentum oscillator, and a swing oscillator.

What I’m looking to do mainly is to compare price highs with oscillator highs and look for divergences, particularly if price makes a new swing high and the  oscillator fails to make a new high.  I’m also concerned with New Momentum Highs (or Lows) which clues me in that an actual price high is likely yet to come.

When comparing price swings of certain magnitudes, I look to draw Fibonacci Retracements of key price pivots, and look to use Fibonacci levels as both targets and entries (as well as support and resistance).  I don’t always show Fibonacci retracement levels on my charts, but they are very important to me and I have a white board in the office where I write down key Fibonacci levels based off significant price pivots.

I’m also applying of Gann price/time projection principles as well as Elliott Wave theory, into my trading and analysis as well, neither of which can be expressed by default in StockCharts.

I always show the top portion (chart) on the site, so let’s pan the camera down and look at the settings/engine that drive the charts I post publicly on the site:

Feel free to let me know if there are additional questions or suggestions.

(I am not compensated in any way by StockCharts.com or TradeStation Securities in posting their charts or mentioning their companies.  All rights reserved).

  • Digg
  • del.icio.us
  • Facebook
  • E-mail this story to a friend!
  • StumbleUpon
  • Technorati
  • TwitThis
11 Comments

11 Responses to “How I Set Up My Charts”

  1. Steven Says:

    Hi, Can you explain a little about
    Gann price/time projection

    I heard of it for a long time and read one book, however, I have no clue how to use it at all.

    Thank you very much

  2. Corey Rosenbloom Says:

    Hey Steven,

    I’m actually just learning about Gann myself, but it’s based on the concept of price times time (or price X time) to arrive at inflection or timing points for potential market turns. Some programs use Gann Angles, which are rays (trendlines) projected from a price peak that often provide support & resistance. I used this tool in my post:

    http://blog.afraidtotrade.com/is-there-potential-support-for-gold-at-these-levels/

    Otherwise, I haven’t really discussed Gann on the blog, but hope to incorporate discussion or charts using it.

    Gann is a little mysterious and from what I can tell there’s not much information about his exact strategies out there, or if there is, it’s closely guarded or very expensive. There’s not even a lot of free sites that give much information at all about it.

    I’ll be writing and incorporating more as I learn more so hopefully I’ll have a better answer in the future.

    If anyone has any insights on Gann, or uses Gann Analysis extensively, please write/comment here and let us know.

  3. Anonymous Says:

    Old post but linked up on a best of 2008. While I have looked at your charts for months, it never really occured to me WHY they are so easy to read. Sometimes the answer is so obvious. :)

  4. Corey Rosenbloom Says:

    Anon,

    Thank you for reading! I’ve studied many of the indicators in depth and tested strategies related to them and have developed a feel for them, but ultimately, what works is the simple analytics – nothing magical. Trend, momentum, range/volatility, support/resistance, patterns, etc.

    I once had 15 or so indicators and I wouldn’t take a signal until all of them (or most of them) lined up. Needless to say I didn’t trade much and when I did, sometimes I’d still get hit with a stop-loss.

    Now, it’s back to simplicity.

  5. Dinosaur Trader Says:

    Corey,

    FWIW, I’m all about simplicity as well. I use candlesticks, volume and 2 MAs. Having too many indicators can definitely keep you out of good trades.

    -DT

  6. Avi Says:

    Certainly too many indicators make you hesitate; I like a scaled one too (as the rsi) since it gives some ‘extra’ information.

  7. Indrajit Mukherjee Says:

    Hi Corey,

    The 3,10,16 looks interesting. I am trying it on Nifty EOD charts and results are good to see. Can you suggest some more tutorial on the subject?

    Regards

  8. manishkrb Says:

    hope ur above stratity is for eod. it will be better if u can give overlays & indicators for intraday charts like 5min chart, 15 minchart & 1hrs chart

  9. manishkrb Says:

    hope ur above stratity is for eod. it will be better if u can give overlays & indicators for intraday charts like 5min chart, 15 minchart & 1hrs chart

  10. Elie Says:

    i have a question in regards to candlesticks. i see on stockcharts.com that the a bar that is down for the day but up compared to yetsreday is black as opposed to green. i never see this on another charting package. do you know where i can find charts that indicate the change in the period and compare it to a previous period to change the bar color accordingly? thanks.

  11. Dhiru Says:

    Half of the battle in Forex is won if we know how to set up the charts properly. It is unfortunate that majority numbers of the newbies don’t value charts too much all they prefer is naked trading which in my view is nothing less than gamble, so will really never recommend that to anyone not even my enemies. I like working with OctaFX broker as they have their own analysis service by experts, so that really helps me in getting good results.

Leave a Reply