How I Set Up My Charts

by SP Joe

I am a big fan of simplicity when it comes to trading.  When it comes to trading you are constantly digesting a wide range of ever changing data, and having a hard to read chart setup only compounds your work.  I want to be able to look through my charts and instantly tell if I should be buying, selling, or holding.

The two most important parts of a chart are price and volume.  Indicators derive their values from price and/or volume thus they are lagging or trailing indicators.  We use indicators on a chart to confirm what we are seeing in price and volume.  We do not use them to tell us when to buy or sell.

To start I use a 6 month daily chart.  I feel for being a short term trader that 6 months is a good time frame to use.  I also use the daily chart to look for all my setups.

Next I layer on the 20, 50, and 200 day moving averages.  The moving averages serves to show the trend.  20 will give you the short term trend.  50 will give you the medium term trend.  200 will give you the long term trend.

For volume I throw on the OBV (On Balance Volume).  This is used to see if there is more buying or selling going on.  You can actually see this without the indicator by looking at the volume and seeing if there is more green than red volume.  On most charts you can tell but on some charts it gets a bit more difficult.  The OBV helps see that clearly.

After that I throw on Stochastics with the 5,3,3 settings.  A lot of people use the default 14,3,3 settings but for the time frame I trade that is too long.  The 14 period is almost 3 weeks while the 5 period is just one week.  The Stochastics is used to determine if the stock is short term oversold or overbought.  This will make sure you don't go long when something is too overbought or short when something is too oversold.  Again, you can easily look at the price action and tell if something is extended and overbought/oversold.  However, adding the indicator just gives you a clear view.

That is how I set up my charts and use indicators to make my decisions.