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's important to create well-designed charts that will enhance, not hinder, your market analysis. The faster you can interpret market information, the faster you can react to the changing conditions.
Spending time to develop clean, easy-to-read charts and workspaces can improve your situational awareness and ability to decipher market activity. Read on for some tips on how to make the best possible stock charts.
- Technical traders use a variety of stock charts to analyze market data in order to pinpoint optimum entry and exit points for their trades.
- By setting up efficient charts and workspaces, you'll gain quick access to the data you need to make profitable trading decisions.
- To create a well-designed stock chart, you'll want to be careful in your selection of color choices, fonts, layout, indicators, and overlays.
- Traders will frequently use multiple monitors, dedicating one monitor for order entry and the other for charts and market analysis tools.
While it can be fun to experiment with different chart colors, and many chart analysis platforms support literally hundreds of color choices, you should 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, but they all must also work together to create a well-contrasted chart.
In general, chart backgrounds are best kept to neutral colors; white, gray, 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 you've selected a pleasing, neutral background color, you can fine-tune the rest of the chart. You'll need to select colors for things like grid lines, axes, and prices. Again, it is a good idea to leave these in a neutral color, but one that contrasts with the chart background. A light gray background with a black or dark gray grid, axes, and price components, for example, creates an easy-to-read chart.
Price Bar and Indicator Colors
You can apply price bars and indicators to your chart and the colors for these should really stand out from the chart background. After all, this is what you're 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 greens 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 gray background. Indicators should be in contrasting colors so that any data can be easily seen and interpreted.
Special Color Considerations
An additional idea to consider is using different colors for charts that serve different purposes. Maximizing the visual impact of your stock charts will depend upon the types of indicators you use for your analysis. For example, you might create some graphs to determine entry and exit decisions, while you create others simply for learning purposes. If more than one symbol is being traded, you might consider a different background color for each ticker to make it easier to rapidly isolate data for each individual stock.
The Technical Analysis course on the Investopedia Academy includes interactive content and real-world examples to enhance your knowledge of the indicators and tools that are key to trading success.
Designing the overall workspace (all of the charts and other market data that appear on your 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 you're using the same indicator 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.
Indicators and Overlays
To minimize extraneous market data, be sure that all of the data (including indicators) is pertinent, useful, and is being used regularly. 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; you should 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.
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 you 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 your ability to read fine print. It is helpful to experiment with different fonts and sizes until you find a comfortable choice. Once you've decided upon the font and size, consider using the same selection on all charts. Again, this continuity will aid in creating charts that are easy to read and interpret.
Once you have a chart or workspace setup you're happy with, you should save it for future use. (See the platform's "Help" section for directions.) It's not necessary to reformat your charts and workspaces each time you open the analysis platform. It's also a good idea to take a screenshot for backup purposes. Since setting up the charts and workspaces is time-consuming, it's in your best interest to have a quick method of restoring any lost settings. Choose a broker with whom you feel comfortable but also one who offers a trading platform that is appropriate for your style of trading.
Where Can You View Stock Charts?
A variety of financial websites offer a multitude of chart options for stocks, mutual funds, exchange-traded funds, and other financial securities — including Investopedia.
Do You Have to Make Your Own Charts?
No, you don't have to create your own charts to analyze stocks. There are numerous apps and financial web sites that offer customizable charts. Professional or technical traders are more likely to work from self-created charts, in addition to whatever charting software they are using.
Can You Use Stock Charts for Day Trading?
Yes, the techniques described in the story for creating stock charts can be applied to day trading by developing charts to analyze shorter-term market trends and stock patterns.
The Bottom Line
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. You may have all of the right information to make smart trade decisions, but if you can't find and interpret that data quickly, it is useless. Creating high-performance chart setups can help you increase your situational awareness and thus become a more efficient and profitable trader.