If you analyze stock’s fundamentals before buying it, you probably know what “Long term” means. Usually, we analyze 5 to 10 years of company’s financial history and this is a long term background check in my mind. The question is shall we do the similar long term check of price history?
“The value of the long-range background chart is that it helps you put current price activity into historical context.”
Secrets for profiting in bull and bear markets by Stan Weinstein.
It also helps to identify important formations and long term highs and lows. For example, if you see that stock made a new high for the past several years, you may consider it as a very favorable situation, as it shows that there is no further resistance overhanging the stock. On the opposite, if you do not do long term check, you may miss previous year high which can work as a resistance level for the stock’ price.
In today’s world the switch between daily and weekly or monthly charts is easy to do in the trading platform like ThinkOrSwim, for example. All you have to do is change chart type in the top menu (see picture below).
Take a look to the following daily and weekly charts for QQQQ. They do not look the same and both serve their own purpose.
QQQQ Daily Chart
The daily chart is the best for short term trading and shows open, high, low and close prices for each day. It shows short term stock activity and usually presents up to 3 months of data.
If you are looking for trends of several years you will find extremely useful weekly and monthly charts. They built on the same rules and the only difference between daily and weekly chart is weekly charts shows the open, high, low and close price for the entire week, Monday trough Friday trading. It also shows the volume for the entire week. Monthly and yearly charts build the same way – each bar on a chart represents trading for the entire month or year.
QQQQ Weekly Chart
It seems that weekly charts are most useful for me. As Stan Weinstein says in his book “Secrets for profiting in bull and bear markets”, there is enough definition to trade, but they are especially valuable in showing the really important moves that matter to intermediate term traders and investors.
Interesting enough that all types of technical analysts, like stochastic, MACD and so on can be applied to charts of all ranges the same way. However, keep in mind that buy/sell signals will depend on the chart range – the longer the range the less signals you will get. The point is a day trader, probably, should not trade on yearly chart signals, but may find it useful to check long term charts to uncover long-term dynamics.
Tags: date range, technical analysis
