Chapter 3 Chart Construction

Type of charts Bar chart: shows open, high, low, close prices Line chart: uses the closing price Point and figure chart Candlesticks: the relationship between the open and the close

Bar chart

Line chart

Candlestick chart

Construction of the daily bar chart Volume represents the total amount of trading activity in that market for that day. (Figure 3.7) Arithmetic vs. logarithmic scale (Figure 3.6) A move from 5 to 10 on the arithmetic scale would be the same distance as a move from 50 to 55, even though the former represents a doubling in price, while the latter is a price increase of only 10%.

Arithmetic vs. logarithmic scale

Future and open interest Open interest 未平倉數is the total number of outstanding futures contracts that are held by market participants at the end of the day. The increase in the numbers in the first few months of life and decline near the end of trading (life) are just a function of the limited life feature of a commodity futures contracts. To provide the necessary continuity in volume已成交數and open interest numbers待交易數, and to give them forecasting value, the total numbers are generally used. Volume and open interest are reported a day late.

Volume and open interest

Future and open interest The individual open interest numbers in futures tell us which contracts are the most liquid for trading purposes. (As the term implies, higher open interest means that there is more interest in certain delivery months.) As a general rule, trading activity should be limited to those delivery months with highest open interest. Months with low open interest numbers should be avoided.

Weekly and monthly bar charts Weekly/monthly chart: one bar represents the price activity for the entire week/month. * Daily chart covers 6~9 months. (1 month~1 years in Yahoo Finance) * Weekly Chart can go back as much as 5 years. * Monthly chart, up 20 years. (Max in yahoo finance)