Tips For Creating Profitable Stock Charts

By Jean Folger AAA

Charts are a technical trader's portal to the markets. With so many advances in analysis platforms, traders are able to view a tremendous assortment of market information. But with so much data available, it is important to create well-designed charts that will enhance, not hinder, a trader's market analysis. The faster a trader can interpret market information, the faster he or she can react to the changing conditions. Spending time to develop clean, easy-to-read charts and workspaces can improve a trader's situational awareness and ability to decipher market activity. Read one for some tips on how to make the best possible stock charts. (To learn about technical analysis and technical trading, check out Introduction To Types Of Trading: Technical Traders and Technical Analysis: Introduction.)
Colors
While it can be fun to experiment with different chart colors, and many chart analysis platforms support literally hundreds of color choices, one must remember that a lot of time will be spent looking at the chart. Choosing colors that are easy to view is a must. Not only do individual colors on the chart need to be visually pleasing, they all must work together to create a well contrasted chart.

In general, chart backgrounds are best kept to neutral colors; white, grey and black work well. Bright or neon colors may become intolerable over even a short period of time, and can make chart indicators harder to see.

Once a pleasing, neutral background color is selected, the trader can fine-tune the rest of the chart: things like grid lines, axis and price colors need to be selected. Again, it is a good idea to leave these in a neutral color, but one that contrasts with the chart background. A light grey background with black or dark grey grid, axis and price components, for example, creates an easy-to-read chart. (For more information, see Charting Markets Into The Future.)

Price bars and indicators may be applied to the chart and should really stand out from the chart background. After all, this is what a trader is really watching. Price bars in red (for down bars) and green (for up bars) will show up well against any of the neutral background colors. In addition, most analysis platforms provide a variety of shades of reds and green to choose from to further increase visibility. Price bars in black (for down bars) and white (for up bars) stand out very well against a grey background. Indicators should be in contrasting colors so that any data can be easily seen and interpreted.

An additional idea to consider is using different colors for charts that serve different purposes. For example, some graphs might be used to determine entry and exit decisions, while others are observed simply for learning purposes. If more than one symbol is being traded, traders might consider a different background color for each ticker to make it easier to rapidly isolate data for each individual stock.

Layout
Designing the overall workspace (all of the charts and other market data that appear on a trader's monitors) requires consideration as well. Having more than one monitor is extremely helpful in creating an easy-to-interpret workspace simply because there is more opportunity to follow more securities.

Ideally, one monitor should be used for order entry, and any remaining monitors are used for charts and other market analysis tools. If the same indicator is to be used on multiple charts, for instance a stochastic oscillator, it is a good idea to place like indicators in the same location on each chart, using the same colors. This makes it easier to find and compare the specific indicator on different charts. Figure 1 shows an example of a two-monitor workspace, with the order entry screen on the left monitor, and the chart analysis screen on the right monitor.

Figure 1: A two-monitor workspace with order-entry and chart-analysis screens.
Charts created using Tradestation

To minimize extraneous market data, be sure that all of the data (including indicators) is pertinent, useful and is being regularly used. If it is not, remove it from the chart; it will only create clutter. Carefully choosing what is included on charts is a matter of trial and error; one must experiment with different data to discern between necessary and unimportant analysis tools. More than four or five open windows or charts on the same screen can get confusing. (This relatively unknown tool could help you find an asset's trend faster. To learn more, read A Look At Kagi Charts.)

A main price chart can include overlays - those indicators that are drawn directly over the price bars. These include tools such as moving averages and Bollinger Bands®. Charts can also contain sub-charts to house additional indicators such as the Consumer Confidence Index (CCI) and the relative strength index (RSI). Remember to arrange the indicators in the same way on each chart so it will be easier to find and interpret the data.

Sizing and Fonts
Using bold and crisp fonts will allow traders to read numbers and words with greater ease. Font size should be determined by how many charts are squeezed into one monitor, the relative importance of any written information, and ultimately the trader's ability to read the fine print. It is helpful to experiment with the different fonts and sizes until a comfortable choice has been found. Once the font and size has been decided upon, consider using the same selection on all charts. Again, this continuity will aid in creating charts that are easy to read and interpret.

Saving Charts
Once a trader has a chart and/or workspace setup that he or she is happy with, it can be saved for future use (see the platform's "Help" section for directions). It is not necessary to reformat the charts and workspaces each time the analysis platform is opened. It is also a good idea to take a screenshot for backup purposes. Since setting up the charts and workspaces is time consuming, it is in a trader's best interest to have a quick method of restoring any lost setups. (Choose a broker with whom you feel comfortable but also one who offers a trading platform that is appropriate for your style of trading. For more information check out 9 Tricks Of The Successful Trader.)

Conclusion
Although time consuming, setting up efficient charts and workspaces is well worth the effort. Being able to quickly access and interpret market data is an essential component in the competitive trading arena. A trader may have all of the right information to make smart trade decisions, but if he or she cannot find and interpret that data quickly, it is useless. Creating high-performance chart setups can help traders increase their situational awareness, and thus become more efficient and profitable in the markets.

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