Understanding Day Trader's Charts

Day trading charts are graphical representations of stock price movements and their derivative calculations and statistics. There are many different types of charts a day trader may refer to in any given day to assess, calculate, time and determine when and what to trade in. A few of the more common charts are listed below:

Stock Price History and Volume Chart:

The stock price history chart is the most basic of day trading charts and shows the movement of a stocks value over time periods selected by the day trader. These charts are often accompanied by a volume overlay or separate chart just below the stock price chart that indicates how many shares of the stock are traded and to what extent. These charts can be viewed as either lines, candlesticks or bars, each of which highlights a different aspect of the nature and behavior of price movements.

Stock Options Chart:

A stock options chart is used by options traders to determine what price, and expiration date a stock option will be purchased at. These charts are not used by day traders alone, but also investment firms and investors. The stock options chart is divided into two sections puts and calls. The put section is for traders who are attempting to lock into a sell price on or before a certain date. The call section is for traders who are attempting to lock into a buy price on or before a certain date. Both the puts and the calls are divided further into month charts that extend several months into the future.

Technical Analysis Charts:

Technical analysis charts allow day traders to view many different forms of analysis all at once. These tools are called indicators and are either overlayed onto a basic stock price history chart or take the place of the basic stock price history chart. The trader can refer to the price of the stock in his or her analysis. Some examples of commonly used technical indicators and overlays are moving averages, candlesticks, and Bollinger bands. Each of these helps a trader infer patterns in price movement and volume with the intent of predicting future price movement.

The technical analysis charts can become quite complex and include several other indicators such as commodity channel index, on balance volume, and rate of change/momentum. The purpose of these and other indicators is to help signal the following trends to a trader:

-Daily patterns in a stocks price and volume.
-Price floors and ceilings.
-Support and resistance levels in stock prices
-Changes in trends
-Stock price volatility

Stock charts are one of the day traders most important tools as they are the platform from which a technical trader performs a stock analysis. Each chart indicator and overlay presents price and volume related information that may or may not be contradictory. It is the responsibility of the day trader to interpret the signals based on his or her experience and know how. The charts are useful tools but are not a guarantee of trading success. This is because the information presented in day trading charts is based on a wide variety of variables and not a controlled amount of factors as in scientific analysis. Nevertheless, day trading charts organize a large amount of data and analysis in to well presented graphical representation of what is going on. These representations most commonly take the form of graphs and sometimes numerical charts as in the case of options traders.

Sources:

http://stockcharts.com/school/doku.php?id=chart_school:chart_analysis
http://www.thebulltrader.com/