Chart Indicators & Oscillators

by Leo Quinitio

www.pse.com.ph

Random Walk Theory

Author Burton Malkiel "A Random Walk Down Wall Street“ top-seller finance book

Stock price changes have the same distribution and are independent of each other, so the past movement or trend of a stock price or market cannot be used to predict its future movement.

Followers think that the market cannot be outperformed without assuming additional risk.

Critics say stocks actually form trends at length and it is possible to beat the market through careful study of buying & selling points.

Efficient Market Hypothesis

It is impossible to "beat the market" because stock market efficiency causes existing share prices to always incorporate and reflect all relevant information.

Stocks always trade at their fair value on stock exchanges, making it impossible for investors to either purchase undervalued stocks or sell stocks for inflated prices.

It is impossible to outperform the overall market through expert stock selection or market timing, and that the only way an investor can possibly obtain higher returns is by purchasing riskier investments. Efficient Market Hypothesis

A cornerstone of modern financial theory

Believers argue it is pointless to search for undervalued stocks or to try to predict trends in the market through either fundamental or technical analysis.

Warren Buffett has consistently beaten the market over long periods of time, which by EMH is impossible

The 1987 stock market crash when the Dow Jones Industrial Average (DJIA) fell by over 20% in a single day, is evidence that stock prices can seriously deviate from their fair values. Balance Sheet Solvency Ratio

FUNDAMENTAL ANALYSIS

Cash Flows TECHNICAL ANALYSIS INVESTMENT ANALYSIS

Fundamental Analysis Technical Analysis

Method of forecasting future price movements of a security based on Study of past market data such as political, environmental & other prices + volume = predict future factors price movements (I.e. stocks/markets)

Traditional economic + Business concepts = value of investment Proponents believe that the market’s judgment of an issue’s fundamentals are determined by Examination of the above variables supply and demand variables that is called Valuation process are already reflected in prices. INVESTMENT ANALYSIS

Fundamental Analysis Technical Analysis

View from financial statements View from charts

Best employed for long term investing Best employed for short term trading

Data utilized come out periodically Data utilized come out daily Tends to focus on a specific sector

Focused on what “must” happen Focused on what happens VALUATION PROCESS

Fundamental Analysis Technical Analysis

Top Down Approach Bottom-up Approach

Considers condition affecting Economy Financial Markets Industry Company VALUATION PROCESS

Fundamental Analysis Technical Analysis

Works best if all investors are logical and could separate emotions from investment decision Works best in determining market sentiment and factor it in the creation of investment or trading Will succeed if the analyst finds decisions overlooked data in identifying undervalued securities EXPECTATIONS

Should I buy today? What DON’T AIM TO PREDICT PRICES will the prices be tomorrow, CONSISTENTLY & ACCURATELY next week or next year?

Technical analysis is the YES! answer!?NO! Technical Analysis will improve investing? AIM TO REDUCE RISKS & Make sensible investment IMPROVE PROFITS decisions DEFINITION

The study of prices, with charts as the primary tool.

A method of evaluating securities by analyzing statistics generated by market activity, such as past prices and volume.

DEFINITION

Once viewed as arcane or mystical but today it is part of every major investment or trading decision.

Evolving quickly such that techniques today may be rendered incomplete or obsolete tomorrow.

Used as the basis for automated trading.

ADVANTAGES

Portability

Price based trade or investment planning

Does not require knowledge of many mathematical formulas

DISADVANTAGES

May not be used to predict future price action

Not easy to use with IPOs

May miss 20-25% of the movement

It has a tendency to create self fulfilling prophecies

Subjectivity

A chart is a picture A picture is worth a thousand words… or probably a thousand dollars

Technical analysts Technical do not attempt to analysts believe measure a that the historical security's intrinsic performance of value, but instead stocks and use charts to markets are identify patterns indications of that can suggest future future activity. performance.

Equally applicable on any security or tradable financial instrument (stocks, bonds, commodities, futures, indices, mutual fund, options) In a shopping mall Fundamental analyst: will go to each store, study the product and then decide whether to buy it or not

Technical analyst: will watch people go into the stores. Decision would be based on the patterns or activity of people going into each store. HUMAN ELEMENT

Humans are not easily quantifiable nor predictable

Many investment decisions are based on irrelevant criteria

The price of a security is a consensus of at least two humans

The price depends on human expectations HUMAN ELEMENT

The breadth of market participants guarantees an element of unpredictability and excitement

Why Do Prices Fluctuate? MARKET PSYCHOLOGY

Each investors would have his or her own opinion about a certain security or any other object for that matter MARKET PSYCHOLOGY THE PRICE IS RIGHT GAME

cellphone MARKET PSYCHOLOGY THE PRICE IS RIGHT GAME

Cellphone Five years depreciated MARKET PSYCHOLOGY THE PRICE IS RIGHT GAME

Cellphone previously owned by Hayden Kho MARKET PSYCHOLOGY MY CHOICE GAME

Designer shoes

MARKET PSYCHOLOGY MY CHOICE GAME

Designer shoes

MARKET PSYCHOLOGY MY CHOICE GAME

Designer shoes

MARKET PSYCHOLOGY MY CHOICE GAME

Designer shoes

MARKET PSYCHOLOGY MY CHOICE GAME

Designer bags

PRACTICAL MARKET PSYCHOLOGY

Logical: buyers want to buy at the lowest price possible

Competitive: buyers raise their bids in order to attract sellers

Emotional: buyers tend to be euphoric when price increases PRACTICAL MARKET PSYCHOLOGY

Logical: sellers want to sell at the highest price possible

Competitive: sellers tend to lower their offer price in order to attract buyers

Emotional: sellers tend to panic when price drops MARKET CYCLE High price will urge sellers’ to cash-in More sellers compete to Euphoria sets in attract buyers Panic sets in

Price becomes too cheap to be ignored News of increasing price by buyers spreads, price gains momentum

More buyers compete to attract sellers MARKET CYCLE

Distribution BASIC ASSUMPTIONS

1. The market discounts everything

2. Price moves in trends

3. History tends to repeat itself ORIGINS

Dow Jones Theory 1890

Basic Principles of Dow Theory:

1. Averages discount everything 2. Market trends [primary (tide), intermediate or secondary (waves), tertiary (ripples)] 3. Bull and bear markets 4. Lines (tight sideways band) 5. Averages must confirm 6. A trend continues until it is reversed 7. Volume goes with trend

EVOLUTION (WEST)

Dow Theory 1890s

Elliot Wave 1938 Classical Charting EVOLUTION (EAST)

Japanese Charting 1800s (Meiji Period)

Kagi 1870s Candlesticks

Renko Equivolume

Ichimoku Heikin-Ashi ELLIOT WAVE

Ralph Nelson Elliot

The Wave Principle published in 1938

Based on Fibonacci ratios “golden ratio” = Nature's Law — The Secret of the Universe

ELLIOT WAVE

New out

More people join

Consolidation

Profit taking

Bargain hunting ELLIOT WAVE

Excess Distribution

Big move Big move

Despair

Accumulation ELLIOT WAVE

short or truncated

corrective

impulse Top of wave 1

biggest wave Below bottom of wave 4 ELLIOT WAVE

The Elliott Wave Principle does not provide certainty about any one market outcome. Instead, it gives you an objective means of determining the probability of a future direction for the market.

CLASSICAL CHARTING

Chart Composition Chart Types Chart Trend Channels Chart Patterns & Formations Chart Indicators & Oscillators CHART COMPOSITION Price Fields

Open - The first price traded for the period. An important consensus as all interested parties were able to “sleep on it”.

High - The highest price traded for the period. The point where there were more sellers than buyers. Close – The last price traded for the Low - The lowest price traded for period. Most often used price for analysis. the period. The point where there The relationship of the open and close were more buyers that sellers. prices is considered most significant by technicians.

CHART COMPOSITION Price Fields

Volume – The number of shares traded during the period.

Bid – The price a buyer is willing to pay

Ask – The price a seller is willing to accept

CHART COMPOSITION Axis

Y= price Pricerange

X= time

Time line CHART COMPOSITION Grid Scaling

Arithmetic (or Linear) CHART COMPOSITION Grid Scaling

Semi Logarithmic CHART COMPOSITION Grid Scaling

Arithmetic Scaling Semi-log Scaling CHART TYPES

Line Chart CHART TYPES

high

low

Pole Chart CHART TYPES

Bar Chart CHART TYPES

PCOR OPEN HIGH LOW CLOSE DAY 1 6.00 6.00 6.00 6.00 DAY 2 6.00 6.00 5.90 6.00 DAY 3 5.90 5.90 5.90 5.90 DAY 4 5.80 5.90 5.80 5.90 DAY 5 5.90 5.90 5.80 5.90 DAY 6 5.90 6.00 5.90 6.00 DAY 7 6.00 6.10 6.00 6.00 DAY 8 6.10 6.10 6.00 6.00 DAY 9 6.30 6.70 6.30 6.60 DAY 10 6.70 6.80 6.60 6.70 DAY 11 6.70 6.70 6.60 6.70 DAY 12 6.70 6.80 6.70 6.70 DAY 13 6.70 6.70 6.60 6.70 DAY 14 6.70 6.70 6.70 6.70 DAY 15 6.70 6.80 6.70 6.70 DAY 16 6.70 6.70 6.70 6.70 DAY 17 6.70 6.80 6.70 6.70 DAY 18 6.70 6.80 6.70 6.70 DAY 19 6.80 6.80 6.70 6.70 DAY 20 6.80 6.80 6.70 6.70

Bar Chart Plotting Exercise CHART TYPES

Point & Figure Chart CHART TYPES EDC CLOSE 5.20 5.10 5.00 4.90 4.80 5.00 5.20 5.20 5.30 5.40 5.40 5.40 5.40 5.60 5.20 5.20 5.20 5.40 5.30 5.20 Point & Figure Chart Plotting Exercise CHART TYPES

5.6 X 5.5 X 5.4 X X 5.3 X X O 5.60 x 5.2 O X O X O 5.50 x 5.40 x x 5.30 x x o 5.1 O X 5.20 o x o x o 5.10 o x 5.0 O X 5.00 o x 4.90 o x 4.80 o 4.9 O 4.8 O

Point & Figure Chart Plotting Exercise CHART TYPES

Candlestick Chart CHART TYPES

DAY 1 4.95 4.95 4.90 4.90 DAY2 4.95 5.00 4.80 4.80 DAY 3 4.85 5.10 4.85 5.00 DAY 4 5.10 5.20 5.00 5.20 DAY 5 5.20 5.30 5.10 5.20 DAY 6 5.20 5.40 5.20 5.30 DAY 7 5.30 5.50 5.30 5.40 DAY 8 5.20 5.40 5.20 5.40 DAY 9 5.40 5.50 5.30 5.40 DAY 10 5.50 5.50 5.30 5.40 DAY 11 5.30 5.60 5.30 5.60 DAY 12 5.30 5.40 5.20 5.20 DAY 13 5.10 5.30 5.10 5.20 DAY 14 5.00 5.30 4.95 5.20 DAY 15 5.50 5.60 5.40 5.40 DAY 16 5.20 5.20 5.00 5.10 DAY 17 4.95 5.00 4.90 4.95 DAY 18 4.90 5.00 4.90 4.95 DAY 19 4.80 4.85 4.80 4.80 DAY 20 4.90 4.95 4.80 4.85

Candlestick Chart Plotting Exercise CHART TYPES

volume

Equivolume Chart CHART TYPES

Modified Formula

xClose = (Open+High+Low+Close)/4 o Average price of the current bar

xOpen = [xOpen(Previous Bar) + Close(Previous Bar)]/2 o Midpoint of the previous bar

xHigh = Max(High, xOpen, xClose) o Highest value in the set

xLow = Min(Low, xOpen, xClose) o Lowest value in the set

Heikin-Ashi (average bar) Chart CHART TYPES

Candlestick converted to Heikin-Ashi

Heikin-Ashi (average bar) Chart CHART TYPES

high

high close open

close open low

low

Anchor Chart CHART TYPES

Thick lines are drawn when price breaks above the previous high price (>4%) and is interpreted as an increase in demand

Thin lines are used to represent increased supply when the price falls below (>4%) the previous low

Kagi (Focus) Chart CHART TYPES

Constructed by placing a brick in the next column once the price surpasses the top or bottom of the previous brick by a predefined amount

Renko (brick) Chart CHART TRENDS CHANNELS & LINES Plotting Support & Resistance

CHART TRENDS CHANNELS & LINES Establishing Trends (channels & range)

The more times a trend line is tested, the more significant it becomes CHART TRENDS CHANNELS & LINES Trend Acceleration or Deceleration

Angle of trends:

Weak Healthy Overheated CHART TRENDS CHANNELS & LINES When support is broken, it becomes the new resistance CHART TRENDS CHANNELS & LINES When resistance is broken, it becomes the new support CHART TRENDS CHANNELS & LINES Identifying trends, breakouts & breakdowns

Trend Plotting Exercise CHART TRENDS CHANNELS & LINES Historical support and resistance

Historical Support & Resistance Plotting Exercise CHART TRENDS CHANNELS & LINES Historical support and resistance

Historical Support & Resistance Plotting Exercise CHART TRENDS CHANNELS & LINES Retracements & Reversals

Obtained by drawing a trendline between two extreme points and then dividing the vertical distance by the key Fibonacci ratios of 23.6%, 38.2%, 50%, 61.8% and 100% CHART TRENDS CHANNELS & LINES Retracements & Reversals

Fibonacci Numbers

1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, etc

Any given number is approximately 1.618 times the preceding number

Each Fibonacci number is approximately 62% of the next higher number. 38 is the inverse of 62

CHART TRENDS CHANNELS & LINES Fanlines

100%

62%

50%

38%

Retracement & Reversal Plotting Exercise CHART TRENDS CHANNELS & LINES Arcs

100%

62%

50%

38%

Retracement & Reversal Plotting Exercise CHART TRENDS CHANNELS & LINES Pitch Forks

tines

handle X tines X X

Retracement & Reversal Plotting Exercise CHART PATTERNS & FORMATIONS Reversal Patterns

Rounding Bottom

Saucer Top CHART PATTERNS & FORMATIONS Reversal Patterns

Double Bottom

Double Top CHART PATTERNS & FORMATIONS Reversal Patterns

Triple/multiple Bottom

Triple/multiple Top CHART PATTERNS & FORMATIONS Reversal Patterns

Reverse Head & Shoulders

Head & Shoulders CHART PATTERNS & FORMATIONS Reversal Patterns

Spike Bottom

Spike Top CHART PATTERNS & FORMATIONS Continuation Patterns

Rising Tops Falling Tops CHART PATTERNS & FORMATIONS Neutral Patterns

Usually accompanied by decreasing volume

Wedge/Symmetrical Triangle CHART PATTERNS & FORMATIONS Neutral Patterns

Ascending & Descending Broadening (Megaphone) Triangles Formation CHART PATTERNS & FORMATIONS Continuation Patterns

Flags & pennants CHART PATTERNS & FORMATIONS Continuation Patterns

Flags & pennants CHART PATTERNS & FORMATIONS Candlestick Continuation Patterns

Three White Soldiers Three Black Crows CHART PATTERNS & FORMATIONS Candlestick Reversal Patterns

Bullish Engulfing Bearish Engulfing CHART PATTERNS & FORMATIONS Candlestick Reversal Patterns

Bullish Harami Bearish Harami CHART PATTERNS & FORMATIONS Candlestick Reversal Patterns

Doji Star Dark Cloud Cover CHART PATTERNS & FORMATIONS Candlestick Reversal Pattern

Morning Star CHART PATTERNS & FORMATIONS Candlestick Nuetral Patterns

Sushi Roll CHART PATTERNS & FORMATIONS Continuation & Exhaustion Gaps

Exhaustion gap

Runaway (or measuring) gaps

Breakaway gap

CHART PATTERNS & FORMATIONS Continuation & Exhaustion Gaps

Island Reversal

EXERCISE EXERCISE EXERCISE EXERCISE VOLUME HISTOGRAMS

Volume spikes may indicate large scale entry or exit of money VOLUME HISTOGRAMS

Steep price increases not supported by volume are usually dangerous CHART INDICATORS & OSCILLATORS

Indicators are essentially calculations based on the price and the volume of a security and measures factors such as money flow, trends, volatility and momentum

CHART INDICATORS & OSCILLATORS

Indicators are used as a measure to gain further insight into to the supply and demand of securities

Also used to confirm price movement and the probability that the given move will continue

Can also be used as a basis for trading as they can form buy- and-sell signals

CHART INDICATORS & OSCILLATORS

Oscillators = indicators that are plotted within a bounded range

fluctuate into overbought and oversold conditions based on set levels based on the specific oscillator usually 30 and 70

CHART INDICATORS & OSCILLATORS

Leading Lagging

Predictive, strongest during Confirmatory, more useful periods of sideways or non- during trending periods trending trading ranges Better to have less entry and exit points Users need to be careful to make

sure the indicator is heading in the same direction as the trend Usually gives late entry and exit points

Many buy and sell signals that make it better for choppy non- trending markets CHART INDICATORS & OSCILLATORS

Leading indicators are those created to proceed the price movements of a security giving predictive qualities.

Two of the most well-known leading indicators are the Relative Strength Index (RSI) and the Stochastics Oscillator

CHART INDICATORS & OSCILLATORS Stochastic Oscillator

The Stochastic Oscillator compares where a security’s price closed relative to its price range over a given time period.

Graphic Representation %K Line = main line (solid line) %D Line = moving average of %K Line (dotted line)

Variables • %K Periods = time period used in calculation • %D Periods = time period used in calculating moving average

CHART INDICATORS & OSCILLATORS Stochastic Oscillator

Today’s Close - Lowest Low in %K Periods x 100 Highest High in %K Periods - Lowest Low in %K Periods

41 - 38 37.5 = x 100 46 - 38 CHART INDICATORS & OSCILLATORS Stochastic Oscillator

Interpretation: • Buy when %K or %D lines fall below oversold level • Sell when %K or %D lines rise above overbought level • Buy when %K line rises above %D line • Sell when %K line falls below %D line • Look for divergences

CHART INDICATORS & OSCILLATORS Stochastic Oscillator CHART INDICATORS & OSCILLATORS Stochastic Oscillator

Negative divergence CHART INDICATORS & OSCILLATORS Stochastic Oscillator

Positive divergence CHART INDICATORS & OSCILLATORS

Lagging indicators are those that follows price movements and have less predictive qualities

Well-known lagging indicators are the moving averages, Bollinger bands and MACD

Useful during trending periods but not during non-trending periods

Tend to focus more on the trend and produce fewer buy-and-sell signals

CHART INDICATORS & OSCILLATORS

This indicator is comprised of two moving averages, which help to measure momentum in the security

MACD = shorter term moving average - longer term moving average

Signal line = 9-day exponential moving average

CHART INDICATORS & OSCILLATORS CHART INDICATORS & OSCILLATORS

Indicators are used to form buy and sell signals are through crossovers and divergence

Indicators are also used through divergence, which occurs when the direction of the price trend and the direction of the indicator trend are moving in the opposite direction

Two types of divergence - positive and negative. Positive divergence occurs when the indicator is trending upward while the security is trending downward CHART INDICATORS & OSCILLATORS

When to use what indicator/oscillator? Study the Directional Movement Indicator (DMI)

1978 J. Welles Wilder Measures the strength of a prevailing trend or whether movement exists in the market + DI; - DI; 14 ADX trading days

CHART INDICATORS & OSCILLATORS

Monetary Indicators - provide insights on external monetary conditions affecting a security’s price. These basically deal with economic information such as interest rates, money supply, corporate debt, inflation, GNP, GDP etc. tells us what security prices should do. Sentiment Indicators - are studies on investor expectations based on price. In large markets, studies may be done on odd lot boards, the number of call/put ratios, premium on stock index futures, bull/bear ratio. Tells us what investors expect prices to do. Momentum Indicators - are deeper studies on price such as price/volume indicators, breadth index.Tells us what prices are actually doing. BLENDING TECHNICAL & FUNDAMENTAL ANALYSIS (also INTERMARKET ANALYSIS)

• TA may confirm a FA finding • FA is useful in identifying which security to invest in • TA is useful for timing the investment • Volume trends give additional insights to your research • Tracking short term movements • Tracking reactions over time DISADVANTAGES OF BLENDING

It's History!

A simple chart cannot provide the investor with crucial long- term fundamental information such as the future direction of cash flows or earnings per share.

DISADVANTAGES OF BLENDING

The Crowd is Sometimes Wrong

It is possible that a stock that's being accumulated en masse this week may be under heavy distribution the next. Conversely, stocks that are being heavily sold this week may be under accumulation in the weeks to come. DISADVANTAGES OF BLENDING

Charts Don't Typically or Consistently Forecast Macro Trends

Charts also are generally unable to accurately forecast macroeconomic trends.

Example, it is nearly impossible to look at a major player in the oil and gas sector and decipher definitively whether OPEC intends to increase the amount of oil it pumps, or whether a fire that just started at a shipping facility in Venezuela will affect near-term supplies. DISADVANTAGES OF BLENDING

There is Subjectivity

When it comes to reading a chart, a certain amount of subjectivity comes into play. Some may see a chart and feel that a stock is basing, while another person might see it and conclude that there is still more downside to be had.

EXAMPLES OF BLENDING EXAMPLES OF BLENDING EXAMPLES OF BLENDING IMPROVED TRADING/INVESTING Creating a System

• Information reaches you • Check fundamentals of the security • Look at the chart, start with the big picture • Try to relate known incidents w/ price action • Make references for current prices vs historical price • Zoom in to current price performance • Identify trends, patterns currently affecting price movement • Check volume histogram & choice indicator/s • Compute risk vs. reward •Draw a strategy: how much to invest & when to enter/exit • Manage your strategy TECHNICAL REPORTING

THE TECHNICAL JABBER

HEADER:

.Name of Stock .Type of Chart (line, bar, candlestick, equivolume, etc.) .Indicators/oscillators used (stochastics, SMA, EMA, RSI, MACD) .Volume window (simple or with histogram)

Optional:

.Overlays .Author

CHART IMAGE (Single, double or triple window)

SUMMARY RECOMMENDATION: (hard or soft buy, sell, hold, combination, other strategies)

TECHNICAL REPORTING

BODY

Big Picture

.Historical overview (general observation) .Study of major trends .Study of fan lines and retracements .Study of patterns .Study of volume .Study of indicators/oscillators (positive or negative convergence, divergence, overbought or oversold levels, positions, configurations)

TECHNICAL REPORTING

TAIL

Close up

.Current trend .Confirmatory or predictive configurations

Prognosis

.Possible scenarios (probable, adverse) .Strategic recommendations (medium to long term activity) .Tactical recommendations (short to medium term activity) .Accumulation or distribution points SOURCES OF CHARTS IN THE PHILIPPINES:

• The PSE Website: www.pse.com.ph • Bloomberg/Thomson Reuters •Technistock & other vendors • Trading participants/ Brokers • Other charting software RECOMMENDED READING:

•Technical Analysis from A to Z, , Steven B. Achelis, 1995; 2001

•Technical Analysis: Predicting Price Action in the Market, Elli Gifford, 1995

•The Visual Investor: How to Spot Market Trends, , John J. Murphy, 1996

•Beyond Candlesticks: New Japanese Charting Techniques Revealed, A Wiley Finance Edition, Steve Nison, 1994 CHARTING SOFTWARE & DATA:

Contacting the data provider (Payment required):

1. Go to: http://financemanila.net/forum/ 2. Register. 3. Look for the person with the name “dragon” (administrator of this site). 4. Send “Private Message” (PM) indicating that you want to subscribe to the “End of Day” (EOD) data service. For reference mention Joseph Li 5. Pay for the data services, normally emailed mid afternoon. CHARTING SOFTWARE & DATA:

Obtaining free data (if you have the time to make one).

1. Go to http://www.pse.com.ph/ 2. Click “Quotation Report” (left hand side of the PSE site) 3. Click on the applicable day 4. Cut and paste the data on excel or any software capable of editing. 5. Edit the data in Excel or any software capable of editing the date leaving only the symbol, Volume, High, Low, Open Close fields. 6. Save the data. 7. Upload the data in your favorite charting software. CHARTING SOFTWARE & DATA:

Recommended charting software: Metastock Version 10.1 (www.equis.com) one-time purchase cost of approximately $500 for the basic program. Add-ons available.

Other charting software options: •Supercharts •Telechart •Amibroker

GAMBLING VS INVESTING

Opportunity! 80/20 70/30 50/50 60/40 55/45 50/50 [email protected], [email protected], [email protected] TECHNICAL ANALYSIS Charting Techniques

by Leo Quinitio

www.pse.com.ph CHART COMPOSITION

Grid 0 100 200 300 400 500 600 700 800 900 1000 |______|______|______|______|______|______|______|______|______|______|______l______l

Convenient for plotting Arithmetic grid large numbers Its use would be limited by its lack of detail can plot a great many more Equal line segments represent multiples years than is possible on a by a constant factor linear scale

1 10 100 1000 |______|______|______| 100 101 102 103 Logarithmic grid If we were to divide each broad segment into nine segments and let the ticks CHART represent the years from 1 to 10, 10 to COMPOSITION 100, and 100 to 1000, this is how it would look: Grid Each broad segment is subdivided in the same way

100 101 102 103

Each tick within a broad segment The uneven spacing is because you are represents a multiple of 10 over working with the logarithmic function of these the corresponding tick in the actual numbers not the numbers themselves previous segment. For example, in the segment 100 to 101 the first mark equals 2. In the segment log (10) = 1.00 log (60) = 1.78 101 to 102 the first mark equals log (20) = 1.30 log (70) = 1.85 20, and in the segment 102 to 103, log (30) = 1.48 log (80) = 1.90 the first mark equals 200 log (40) = 1.60 log (90) = 1.95 log (50) = 1.70 CHART COMPOSITION

Grid Similarly the segment between 10 and 30 is equal to that between 30 and 90

Notice that the line segment between 10 and 20 is equal to that between 20 and 40, which is equal to that between 40 and 80 SUMMARY Chart Composition Comparison of Investment Analyses Chart Types

Definition Chart Trend Channels & Lines Advantages & Disadvantages Chart Patterns & Formations A Study of Market Psychology Chart Indicators & Basic Assumptions Oscillators

Origins & Evolution Blending Technical & Fundamental Analyses

Elliot Wave Technical Reporting

Classical Charting CHART INDICATORS & OSCILLATORS

SMA EMA WMA Time series, triangular variable