Trying to Decipher Charts..Pls Help..

[pasha]

Trying to Understand Charts..Pls Help..

Hi Guys,
This is my first post on this forum. I am a beginner in stock trading. Right now I do not trade with a broker, however, I do have a simulator account on Investopedia.I am trying to learn and apply some technical knowledge on the stock chart of HSBC (NYSE:HBC). Below, I am writing my understading of the HSBC chart and some points that I couldn't understand. Can someone pls comment on it, as to whether, I am right or wrong and correct me.

Chart is inserted below the text.

1)The Candle Stick chart is showing a down trend.
2)Since the price is near the lower band of Bollinger Band, it suggests that the stock is getting oversold.When the price will bounce back the lower band and moves up the 20 day moving avg it will suggest a bullish trend.
3) Trading volume is slightly more than half mark.(How should we interpret this ?)
4)The fast(red) and slow(blue) lines lines in the MACD chart are crossing over (red crossing over blue) above the zero point (does this mean that an up trend will be starting soon?
5) The blue line in RSI chart is between 40-50 mark, showing selling pressure.
6) The price resistance looks like to be on 81.50 mark, can someone indicate the support mark, if it any?
7) ROC (momentum indicator).My understanding is that if it is below the zero line, it shows that the closing price of the stock was lower than that of the previous closing price(is this interpretation correct)? I am confused with the two lines, why are there two lines red and blue. and what do they suggest?

You can write your response in-front of each explanation. Any addition to these explanations, and suggestion on what else to consider would be very much appreciated. Thanks in advance.

 

[timsk]

Hi Guys,
I am trying to learn and apply some technical knowledge on the stock chart of HSBC (NYSE:HBC). Can someone pls comment on it, as to whether, I am right or wrong and correct me.

Hi Pasha,
Happy New Year and welcome to T2W.

Your initial request inviting comments as to whether you're interpretation of the chart is right or wrong could, potentially, result in an infinite number of replies. One man's meat is another man's poison. If everyone took the same view about the same stock at the same time, the market would be a mess, to say the least!

1) "The Candle Stick chart is showing a down trend".
On the basis of my opening comments, I'm not going to say you are wrong but, that said, I don't see a downtrend at all. If you see a downtrend and can trade it for a profit - good on you. Don't listen to me or anyone else. In the short to medium term, I would say the stock is range bound. The medium to longer term trend could be up or down but, in order to determine this, it would be necessary to see prices going back at least one year, if not two or three.

2) "Since the price is near the lower band of Bollinger Band, it suggests that the stock is getting oversold. When the price will bounce back the lower band and moves up the 20 day moving avg it will suggest a bullish trend".
I don't use indicators, so I can't comment on this at all save to say that there was a good article recently in the Knowledge Lab about using Bollinger bands which may help you:
http://www.trade2win.com/knowledge/articles/general_articles/indentify-trends-bollinger/

3) "Trading volume is slightly more than half mark.(How should we interpret this?)"
I'm not sure what you mean by this unless you're referring to the volume figure which relates to the last day on the chart? If so, I wouldn't read anything of significance into just one day in the middle of the holiday season. If you want to learn more about volume, make yourself a large cafetierre and lock yourself away in front of your PC for a day or so and plough through this thread:
http://www.trade2win.com/boards/showthread.php?t=11104

4), 5) & 7) I can't comment as I don't use indicators. However, if I did, I'd want to know how they are calculated, when and why they work / don't work and which successful traders profit from them consistently and how I can duplicate their use of them.

6) "The price resistance looks like to be on 81.50 mark, can someone indicate the support mark, if it any?"
Support is at 80.00 or even a tad below.

"Any addition to these explanations, and suggestion on what else to consider would be very much appreciated".
Find a successful trader who trades the same instruments and time frames as you do. On the basis of the chart you've posted, you might find this thread of interest:
http://www.trade2win.com/boards/showthread.php?t=12009
Many new traders add loads of indicators thinking that when they all line up then the resulting trade is a guaranteed winner. This rarely happens, if ever. If you are keen to use indicators, it is much better IMO, to use one or two at most really well rather than to use three or four not so well!

Best of luck,
Tim.

 

[garethb]

You could try this as an excercise if your chart package allows it.

Set the date back one year.
Look at a weekly chart of price and volume with no indicators at all going back about 3 years or more..
Identify periods where it trends and periods where it is range bound. Using simple trend lines mark the trends and the tops and bottoms of the ranges.
Print it off
Write down some observations


Switch to daily timeframe which will hopefully show 8 - 10 months or more and compare with weekly for that period. Notice how you see trends in the daily while it is range bound on the weekly moving up and down within the range. Notice periods of range bound behaviour on the daily whilst it is trending on the weekly. Write down some observations.


Click forwards one day at a time for 5 days. Write down any observations you make. After one weeks worth of dailys look at your weekly chart again - see what's new and write down observations.

Repeat weekly cycle

After 5 weeks worth remove all your lines to give a new blank weekly chart. Look at it afresh and draw the trend, support and resistance lines again. Print and compare with your previous one perhaps look through your notes from the previous 5 weeks.

Repeat the 5 week cycle.

After you have reached the current date try again with other stocks from different sectors.

 

[DaveJB]

Darn,
my post went 'phhhttt' part way in...
I've attached a longer term chart from TC2K for HBC. I'd agree with Tim it's rangebound, bouncing between $80 and $82 in round figures, of course it could do this for ages or simply keep going up/down at the limits...some indicators work better in trends, some are better in trading ranges, there's a thread on this on T2W with lists of which are which you might look at... it's called 'Technical Indicators Categorisation'. It's not really a case (in my view) of which works best when markets do or do not trend, more a case of saying they generate more false signals in one than the other.

You could call each leg of the consolidation a short term trend, as the timescale of a chart changes so different things will be seen - daytrading this on 1 minute charts I'd see a 'long term' (in 1 min bar terms) trend downwards currently - I'd also have other timeframes in view and would not enter this short currently due to it being near the bottom of the range.

http://www.incrediblecharts.com/technical/macd.htm

(Other indicator descriptions can be called up via the sidebar).

Is a link to Incredible charts who have a good description of each indicator, if you want info on the signals they produce. You've already been pointed to articles on T2W for them, which will flesh the Incredible charts stuff out - the IC stuff tends to be concise formula explanations backed up by a demo chart with signals, which can be good when you start to ask 'how is this thing working?'

Personally I'd echo the sentiment regarding overloading the chart with indicators - look at it this way, what are they adding to what is pretty obvious? On your chart the price has climbed a few dollars, then gone into a trading range where we expect it to zig zag around the same price levels for a while... at the end of that it'll either start climbing again, or it'll go back down. Volume is quite low, which we expect at this time of year. The 'body' of your last candle is quite small compared to the H-L range, the 'upper wick (or upper shadow)' and the lower one are both fair sized, implying a bit of indecision on the way to go whilst tagging the lower range of price. (Never mind it's tagged the bollinger band, the price just hit within a few cents of $80 - a price level that has been tagged a number of times before reversing). When the price bars are moving in such a well regulated way, why look at something that is derived fromt he price that is harder to figure out?

Good luck, don't be afraid to work at it...
Dave

 

[charliechan]

id disregard most of those indicators.

macd & roc are both momentum indicators and you are measuring the same thing twice - in different ways. this will only confuse you. they are used usually to measure strength of trend as they have no bounds. rsi is an oscilator and it too measures momentum - but probably best used in a sideways market as it is bound between 0-100.

what makes you say its a down trend? to me, it looks like price is going sideways - the bands are flat.

will it go up or down? thats anyones guess. if i buy 6 mil shares, it will go up. if i sell it will go down. i may be making these decisions based on other reasons than those indicators - so dont use them to predict future price - just to assess current conditions.

in order to make money here, either buy the support, or buy/sell a breakout.

 

[pasha]

Hi Guys,
Thank you all for the detailed replies and corrections. I really appreciate your time and effort. I 'll have a thorough look on identifying charts patterns, trend lines and etc. I'll get back very soon.

 

[Mayfly]

Hi Pasha,

I think this is a helpful article on oscillators: http://www.futuresmag.com/industry/references/etzkorn1097.html

HTH

Cheers

Mayfly