The Importance of Chart Time Frames
Stockscores.com Perspectives for the week ending December 11, 2011
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Charts tell us a lot about what investors are doing with their money. Good chart reading skills can give the investor the ability to predict future price moves but there are many choices to be made on how to set up the charts. An important consideration is the chart time frame, how long the chart goes back and with what time interval.
Generally speaking, the longer term time frame is more important that the short. A good chart pattern set up on a monthly chart has greater importance than a long term set up on a weekly, daily or intraday. As you shorten the time frame, you lower the probability of success, assuming you look for the same pattern on each.
However, waiting for a good monthly chart pattern set up could have you entering a trade long after the best entry signal. A stock could make a breakout in the first week of the month but waiting until the end of the month could have you entering the stock at a much higher price.
Ideally, we want to look at a number of different time frames and seek out stocks that have good entry signals on all them. If the monthly, weekly, daily and intraday charts all say buy at the same time, you have a high probability trading opportunity.
Recent upgrades to Stockscores.com now make this possible. You can now use the Charting controls to change the time frame and interval for the charts you look at. I encourage you to plan with these settings, there is a link to a video farther through this newsletter to show you how to make adjustments to the charts.
Let's look at an example using one of the top performing stocks over the past couple of years, Dominos Pizza (DPZ). This stock started it upward trend back in April of 2009. At the time, the Monthly chart showed a break of the downward trend line, as shown in the chart below:
The weekly chart showed a break from a rising bottom consolidation and through resistance during the third week of the month as you can see from this Weekly chart:
On the Friday of that week, the daily chart showed a good breakout from an ascending triangle pattern, as you can see below:
Finally, the Intraday chart showed how volume increased as the stock gapped up through very short term resistance:
All time frames were saying buy, which meant institutional investors (Monthly charts), long term investors (Weekly), long term traders (Daily) and active traders (intraday) were all voting the same way with their money. All groups felt the stock was likely to go higher.
It took some time but momentum gradually turned and the stock reversed its long term downward trend. The stock never went below that initial support level from the first day of strength. During a tough market, this stock kept on climbing:
When you are looking for stocks to trade, use the new Stockscores charts to check multiple chart time frames for confirmation. Your chances for a winning trade improve when all the charts tell you to do the same thing.Back To Top
Longer term traders should utilize a longer term chart. Stockscores now gives you the ability to look at weekly charts to identify trading opportunities that only require monitoring once a week. I have created a video which outlines how to set the Stockscores charts up for the Weekly interval and how I created this Market Scan. You can view the video by clicking here.
This week, I did a customized Market Scan with the following settings:
Rows to return = 999
Sentiment Stockscore >= 60
Today's Price is >=95% of the 150 day high
Number of Trades > 1000
This scan looks for stocks with optimistic chart patterns (Sentiment > 60), within 5% of the 150 day high and with good liquidity (number of trades > 1000).
Before I ran this scan, I first changed my default chart settings to be a weekly chart. That way, when I viewed the charts of the stocks that the Market Scan found, I would see the long term weekly charts. The aim was to find some stocks that are doing better than the overall market and are in the early stages of a long term upward trend.
To change the chart default, I entered a stock symbol in the Get The Stockscore box in the upper right of the webpage. This brings up a chart, I make sure that I am in Large Chart view by clicking on that link below the chart if it is a small chart. Next, I click on the Charting tab found below the chart. This is where I can set my default chart view. For interval, I select Weekly, Lookback Period I set to 4 years. I make sure the Chart Style is set to Quick. Finally, I click on Create Chart. My default chart view is now established.
I can now run the Market Scan by entering the settings listed above. This scan fond 402 results based on Friday's market data. Quite a large list, so I opted to view the charts with the Gallery Chart Viewer. Here are four stocks with promising chart patterns:Back To Top
1. SWHC
SWHC broke the downward trend line this week and traded more volume than normal. The stock ended the week near its high and the stock's Sentiment Stockscore moved up through 60. The stock moved up about 25% for the week so I would not be surprised if it sees some profit taking in the short term, but the long term potential for an upward trend is good. Support at $2.95.
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2. PVX
PVX is listed on the Canadian TSX market as well as T.PVE. The Canadian listing appears to have outperformed the US listing, but when you account for the strength in the US Dollar against the Canadian recently, the stocks have made the same gain. The US listing shows a break through resistance two weeks ago with this past week seeing quiet trading. With a dividend yield of about 5.5% and an optimistic chart pattern building, this stock has good potential. Support at $8.90.
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3. LLY
LLY has been hot over the past two weeks as the market takes an interest in an Alzheimer's drug that the company is testing. This week, the stock broke through a yearlong line of resistance on the weekly chart. Gains over the past two weeks make the stock susceptible to short term profit taking but a break through $39.50 sets the stock up for a likely continuation of this strength. Support at $35.40.
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References
Get the Stockscore on any of over 20,000 North American stocks.
Background on the theories used by Stockscores.
Strategies that can help you find new opportunities.
Scan the market using extensive filter criteria.
Build a portfolio of stocks and view a slide show of their charts.
See which sectors are leading the market, and their components.
Disclaimer
This is not an investment advisory, and should not be used to make
investment decisions. Information in Stockscores Perspectives is often
opinionated and should be considered for information purposes only. No
stock exchange anywhere has approved or disapproved of the information
contained herein. There is no express or implied solicitation to buy or
sell securities. The writers and editors of Perspectives may have positions
in the stocks discussed above and may trade in the stocks mentioned. Don't
consider buying or selling any stock without conducting your own due diligence.
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