Page 59 - Trading #101 Course – Part One: Trading Basics

TRADING #101 COURSE – PART ONE: TRADING BASICS /2017-10-06

mistaken as slow-moving. To add to the mix, this axis can be constructed using two
main methods — linear or logarithmic.

Price scale and time scale
A linear price scale shows equal spacing between the different values, no matter the
price. The distance between 50 and 60 is the same as the distance between 100 and
110 or 200 and 210. However, logarithmic charts or log charts for short, keeps spacing
between values with respect to a percentage change. In the examples above, the
differences were all 10 points, but the percentage moves varied. From 50 to 60 the
percent change is 20%; for 100 to 110 the change is 10%, and for 200 to 210 it is 5%.
Visually, a stock would have to move the same amount on a percentage-basis to
appear having moved as the same distance on the chart. So an increase from 50 to 60
representing a 20% move would be the same distance if the stock traveled from 100 to
120, or from 200 to 240.
The smaller the time scale, the more data are displayed in the chart. Depending on the
chartist, some feel more is less; for others, more is more. The argument is if there is too
much data, the chart contains a lot of noise which can detract from focusing on the
critical information. If there is too little data, a vital signal could be omitted. When
comparing the steepness of inclines or declines of different charts, be sure the charts
are constructed with similar scales. Otherwise you could be making misinformed
investment or trading decisions.

Common Indicators Used in Technical Analysis:

Accumulation/Distribution Line
The accumulation/distribution line is one of the most popular volume indicators that
measures money flow in a security. The indicator attempts to measure the ratio of
buying and selling by comparing the price movement of a period to the volume for that
period.

The calculation is:

Acc/Dist = ((Close – Low) – (High – Close)) / (High – Low) * Period’s Volume

Traders use the indicator to gain insight into the amount of buying compared to selling
in each security. If the accumulation/distribution line is trending upward, it’s a sign that
there is more buying than selling and vice versa.

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