Listen, I know better than anyone that trading is very complicated and takes a long time to master.
I’ve been doing this for almost 20 years, and I can tell you, I’m still learning new things every day.
But there are so many ways to take the heavy lifting out of what we do so we can concentrate on what really matters…
And what really matters is that we survive another trading day so we can return tomorrow, trade again, and gradually grow our capital enough to take advantage of the exciting opportunities.
A great set of tools that will ease the burden of day trading’s complexities are technical indicators, and I often get asked how many of them we should use on our charts.
And my answer is “KISS (Keep It Simple, Stupid).” The less art on your charts, the better.
Honestly, and as I said the other day during Premarket Prep, if I only used two things, it would be Oracle resistance lines and VWAP.
If you want to learn more about our Oracle algorithmic trading tool, tune in to one of our FREE daily webinars, where you can see it in action.
Besides VWAP and Oracle lines, let’s talk about some essential parts of a stock chart that every trader should know.
Today, I want to break down the anatomy of a stock chart…why I fixate on certain levels, what they mean, and how you can use them in your trading.
If this is all new to you, welcome to “Stock Charts 101.” If not, you can use this as a refresher.
Table of Contents
Breaking Down a Stock Chart
First, let’s talk about key levels.
The Green-to-Red (Red-to-Green) Line:
Many traders misunderstand this term…
When I say “green-to-red” or “red-to-green,” I’m not talking about an individual candlestick changing color. I’m referring to the previous day’s closing price.
- If a stock is trading above yesterday’s close, it’s green on the day.
- If it’s below yesterday’s close, it’s red on the day.
- The moment it crosses that line, that’s the green-to-red (or red-to-green) move.
This is a psychological level because traders fixate on whether a stock is up or down on the day.
A red-to-green move is usually bullish and it signals strength.
A green-to-red move is bearish and it indicates weakness.
High of Day and Low of Day:
These are fundamental levels traders watch:
- Pre-market high: (before 9:30 AM open)
- Regular market high: (after 9:30 AM open)
- Low of the day: This applies to the entire trading day for that stock even if it trades pre- and post-market
Why are traders so focused on these levels?
Because stocks that break their high of day often attract more buyers, and stocks that break their low of day often attract short sellers.
VWAP: The Most Important Indicator
As you probably already know, VWAP (Volume Weighted Average Price) is the #1 indicator I use.
- Stocks above VWAP: Bullish
- Stocks below VWAP: Bearish
Everyone, including day traders, algorithms, hedge funds, and so on, is watching VWAP.
If you’re only going to use one indicator, make it VWAP.
The Daily Chart Gives You the Bigger Picture
While intraday charts help us trade in the moment, the daily chart gives us context.
Whole & Half Dollar Levels:
These are psychological resistance/support points.
There’s a reason gas stations price fuel at $3.99 instead of $4.00. Believe it or not, a mere $0.01 difference in price will attract a disproportionally larger number of buyers.
The human brain fixates on round numbers.
Multi-Day & Multi-Month Highs:
Stocks that break out past previous resistance levels often have room to run.
Former Runners:
If a stock has run multiple times in the past year, it’s got history. Traders remember that, and this is something I teach my students to look for.
To use any of these levels and indicators in your trading, you first need a robust platform.
Besides charting, it should feature real-time data, paper trading, stock screening, and more.
My top pick is StocksToTrade and I use it every day,
It features everything mentioned above…PLUS, right now, you can get two weeks of both the STT platform and our Breaking News Chat service for $17.
Grab your 14-day StocksToTrade + Breaking News Chat trial today for only $17!
My Final Thoughts
Look, trading is hard, no doubt about it.
But too many traders overcomplicate price action.
Make things easier for yourself by sticking to the basics on your charts:
- Red-to-green & green-to-red moves
- VWAP
- Whole & half-dollar levels
- High of day and low of day
Master these before adding more indicators. Less is more in this situation.
Once you start scaling up, then you can get fancy. But in the beginning, simplicity wins.
For more trading advice and mentorship, join my StocksToTrade Advisory service.
You’ll also get a monthly newsletter with a list of my top picks, three weekly videos with my watchlists, bonus reports, and more.
Sign up for StocksToTrade Advisory right here!
Have a great day, everyone. See you back here tomorrow.
Tim Bohen
Lead Trainer, StocksToTrade