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Remember the story of the two guys walking in the woods when they came upon an obviously agitated and aggressive grizzly bear? Immediately one guy bends down to tighten the laces on his tennis shoes. |
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Puzzled, his buddy turns to look at him and screams in panic, "What do you think you're doing? Start running, you've got to outrun that bear!" |
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At which point his friend stands up, looks him squarely in the eye, and says, "No, I don't have to outrun the bearI just have to outrun you!" |
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Isn't that what trading is really all about? You don't have to outrun the entire market, you just have to outrun the slower traders. |
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And deep in your heart you know what it takes to outrun them. You need to learn the skills of making high-probability trades and to follow a trading plan. |
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Again, that's where charts come in. If you can learn to use charts to recognize what the market is doing, won't you have a huge advantage over the person who does not have that knowledge? |
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So, we are going to learn a bit about charts in this chapter. Some of this may seem a bit "dry" or "basic" or "technical," but hang in there with us. We won't get too bogged down in details. We just want to be sure you understand some basic charting concepts, and appreciate the power of Japanese candlestick charts. |
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Remember that the concepts we introduce here are part of a foundation for the specific trading techniques we will introduce in later chapters. |
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For trading purposes, we use price charts that simply plot price against time. The vertical axis (y) shows price, while the horizontal axis (x) shows time. |
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Let's consider "time" first. You can construct a chart for any time period you choose. In practicality, the range will be from one minute to one year. In The Sixth Market, we generally will be talking about "daily charts" (that refer to a one-day time period). |
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Then you choose the price you want to plot. In any given time period, there are four different prices you could choose: |
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1. Opening price for the period |
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2. Closing price for the period |
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