Kirkpatrick and Dahlquist, CMT1 Chapter 11

by Steve Kern on June 5, 2015

in CMT Level 1

Part III: Trend Analysis

Chapter 11: History and Construction of Charts

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Chapter Objectives
- The advantages of presenting price information in a picture, or chart, format
- The construction of line charts
- The construction of bar charts
- The construction of candlestick charts
- The construction of point-and-figure charts
- The differences between arithmetic and logarithmic scales
Benefits of Using Charts
- Jack Schwager, book: Technical Analysis (1996)
  - Concise price history
  - good sense of the market’s volatility, useful in assessing risk
  - useful to fundamental analyst, relating areas of major price moves to fundamental conditions of those periods
  - timing tool, even for fundamentalists
  - money management tool, by defining meaningful and realistic stop points
  - reflect market behavior that is subject to certain repetitive patterns
  - chart concepts help develop profitable technical trading systems
  - failed chart signals can lead to very profitable trading opportunities
History of Charting
What Data is Needed to Construct a Chart?
What Types of Charts Do Analysts Use?
- Line Charts
- Bar Charts
- Candlestick Charts
What type of Scale Should Be Used?
- Arithmetic Scale
- Semi-Logarithmic Scale
Point-and-Figure Charts
- One-Box (Point) Reversal
- Box Size
- Multibox Reversal
- Time
- Arithmetic Scale
- Logarithmic Scale
Conclusion
Review Questions