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TUTORIAL GUIDE PART 3: GRAPHICAL ANALYSIS SM3.02 PAGE 1 OF 13 This step-by-step procedure will acquaint you with the graphical analy- sis features of the Stock Charting System. Start from the Master Menu. 1. We will examine the high-resolution graphics first. Type V and you should see a color display on the screen. If you have a monochrome monitor you may see several different shades of one color, rather than different colors. This is where you select the color scheme for TEXTUAL display. Select a color, or press the Enter key by it- self to retain the color scheme you had before. 2. The second color display is for GRAPHICS screens only. If you choose color 0 (zero), you will get high-resolution (80-column) graphs in monochrome. If you choose any of the other color schemes, you will get medium-resolution (40-column) graphics, with color. For now, type 0 <Enter> for high-resolution graphics. The Master Menu should then re-appear. TUTORIAL GUIDE PART 3: GRAPHICAL ANALYSIS PAGE 2 OF 13 3. Type S to proceed to the Stock Select screen. Select one of the sample stocks that came with the system for demonstration purposes, or select DJIND, the Dow Jones Industrials. Don't select the stock entered in Tutorial Part 2; there is insufficient data there for demonstration of moving averages and other features. 4. At the bottom of the screen you may see the caption "XXXXXX for rel. strength". We will examine the relative strength feature later. In the meanwhile press the T key once or twice to cause that caption to disappear. The TAG function selects the "base" security - such as the Dow Industrials - to be used for relative strength analysis. NOTE: By de-activating the relative strength feature you will speed up graphical analysis because the graphics program will not have to read additional data into memory each time graphs are to be dis- played for a particular stock. 5. Near the bottom right corner of the screen you will see the caption Daily or Weekly inside a solid bar. If necessary press the TAB key once so the word Weekly appears. We'll be looking at WEEKLY charts. TUTORIAL GUIDE PART 3: GRAPHICAL ANALYSIS PAGE 3 OF 13 6. Type G and in a moment you will see a graph. Then press the alpha- betic "O" key and you will see the Graphics Display Option screen. A number of graphics features are listed on this screen, and some of them should have an arrow --> next to them. Look at the V = VOLUME option on the left. Press the V key two or three times and observe the arrow turning on and off alternately each time you press V. This is called a "toggle". All of the features (but not the menu functions at the bottom of the screen) are activated in like manner. A feature is active when it has the arrow --> next to it, and not active when there is no arrow next to it. 7. Activate the VOLUME feature (press V). Also activate Moving Aver- ages 2 and 3 but NOT Moving Average 1 (press 1, 2 or 3 as neces- sary). You should see arrows next to each of the active features. For now we will not be using the N, O, L or T features listed nearer to the bottom of the screen. If arrows appear next to any of these features, press the appropriate keys to de-activate them for now; they will be discussed later. TUTORIAL GUIDE PART 3: GRAPHICAL ANALYSIS PAGE 4 OF 13 8. Press G and you should see the graph again. You can vary the den- sity of information (the number of data points) shown on the graph by using the numeric 0-9 keys. The higher the number, the LOWER the density and vice versa. 0 is equivalent to 10 and so gives the lowest density; 1 gives the highest, 2 the next highest and so on. Each time you press a number key the graph will be re-drawn. 9. What you see on the screen can be considered to be a "window" look- ing at part of a larger display, which can extend horizontally to the left and right of the physical screen. The + and - keys effec- tively "move" the screen area to later or earlier ranges of dates, respectively. First press 0 to set up for the lowest density range. Then try presssing the - key a couple of times, and the + key a couple of times, while observing the effects on the graph. The com- puter will beep at you if it cannot take the requested action. Note the vertical scales on the right side of the screen will change automatically, adjusting to whatever data is displayed. The program computes the vertical scale ranges automatically. TUTORIAL GUIDE PART 3: GRAPHICAL ANALYSIS PAGE 5 OF 13 10. You should see two moving average lines; the dotted line represents Moving Average 2 and the solid line Moving Average 3. Also you should see a histogram of sales volumes occupying the bottom third of the display. The sales volume chart is identified by the cap- tions "max=xxxx" and "min=xxxx" on the lower right. These are the maximum and minimum volumes displayed, in thousands. See Appendix C in the user manual for further explanation of some financial terms used in technical analysis. 11. Press O to return to the Graphics Display Option screen. Press C to activate the Crossover/Oscillator feature. Press G again. At the bottom of the screen you will see a Crossover chart (identified by the caption "xover") replacing the volume chart. The Crossover chart depicts the algebraic difference between the two moving aver- ages and so gives a more graphical representation of when the two averages cross. 12. Press O again. Type 1 2 3. This should activate Moving Average 1 and de-activate 2 and 3. We want only Average 1 for the next demo. TUTORIAL GUIDE PART 3: GRAPHICAL ANALYSIS PAGE 6 OF 13 13. Press G to see the graph again. You may notice the moving average line is harder to see because it is intermingled with the high-low- close bars. The oscillator you see below, and identified with the caption "osc", now gives a more graphical representation of the algebraic difference between the moving average and closing price values. The relationships between moving averages and their corresponding closing price values are frequently used as "indicators" in techni- cal analysis. For example the rise of a closing price above a mov- ing average line could be a positive indicator, and the fall below that moving average line could be a negative indicator. The com- bination of certain positive indicators may constitute a BUY signal; the combination of certain negative indicators may constitute a SELL signal. This is known as "technical analysis". Many books have been written, and whole college courses have been taught, on this subject. It is beyond the scope of this user manual to try to teach technical anal- ysis. TUTORIAL GUIDE PART 3: GRAPHICAL ANALYSIS PAGE 7 OF 13 14. Go back to the option screen and activate the on-balance volume feature (press O and then B). The arrow will move up to the B option. Press G to graph. The line graph at the bottom of the display is a popular momentum indicator, identified by the caption "obv". A momentum indicator tends to show the strength of a trend rather than the trend itself. 15. Now type O A G. Observe the high-low-close bar graph now occupies the full screen and shows more detail because there is better ver- tical resolution. Use the ALONE option if you don't want sales volume, oscillators or on-balance volume to show at the bottom of the chart. 16. Go back to the option screen again. Activate moving average 2 ONLY (press 1 and then 2). We want only one moving average for this next demo. Now press F. The program will ask for three percentage values in turn. Type <Enter> 10 <Enter> <Enter>. We have just (F)ixed a 10% trading band for Moving Average 2. Press G now to see the resulting graph. TUTORIAL GUIDE PART 3: GRAPHICAL ANALYSIS PAGE 8 OF 13 17. Overlaying the bar graph you should see a dotted line in between two solid horizontal wavy lines. The middle dotted line is Moving Aver- age 2. The other two lines are a "trading band", with one line 10% ABOVE the moving average and the other line 10% BELOW it. The idea of a trading band is to try to define the trading range of a stock (or fund, commodity, etc.). The width of that trading band is determined by the percentage you entered earlier - the smaller the percentage the narrower the band. The percentage is determined by experimenting and will vary among different stocks. A trading band is useful for identifying a "breakout". The rise of a security price above the upper band can be a positive (bullish) indicator; the fall of that price below the lower band can be a neg- ative (bearish) indicator. TUTORIAL GUIDE PART 3: GRAPHICAL ANALYSIS PAGE 9 OF 13 18. Go back to the Option screen and press the alphabetic O key again. An arrow --> should appear next to the OFFSET option. Press G and note the moving average and trading band have moved to the left, by half the moving average period, to be exact. This causes moving averages to be displayed relative to the CENTERS of their periods, rather than relative to the ENDS as they normally are. There is a school of thought that moving averages are displayed correctly only when they are offset in this manner. Offsetting the moving averages appears to better define the trading range. This is a matter of personal taste. However on most popular charts that show moving averages, the averages are not offset. 19. Press alphabetic O - back to the Option screen again! Press O again to de-activate the OFFSET feature. Now try out the N option on a graph. A non-linear (logarithmic) scale causes data at the top of the graph to become compressed. The non-linear scale depicts the PERCENTAGE change in price and volume rather than the change itself. The difference between linear and non-linear becomes more evident as volume and prices get more volatile. TUTORIAL GUIDE PART 3: GRAPHICAL ANALYSIS PAGE 10 OF 13 20. Now de-activate the (N)on-linear feature and try the (T)rim feature. On the graph you will notice the price scale values have been roun- ded to the nearest whole numbers. Use of this option is a matter of personal taste. 21. De-activate the TRIM feature. Also de-activate the trading bands, by invoking the FIX function and typing 0 <Enter> 0 <Enter> 0 <Enter>. Press the L key to activate the LINE graph feature. Then press G. The high-low-close bars have been replaced by a line graph of clos- ing prices only. You will want to use this type of graph for mutual funds or other securities that don't have a high and low price. Another good use for this type of graph is for depicting interest rates, advance-decline lines or other statistical information. You can still have moving averages, trading bands and so on. 22. Press the Esc key to get back to the Stock Select screen. The Stock Charting system has one more important graph feature you should be aware of. TUTORIAL GUIDE PART 3: GRAPHICAL ANALYSIS PAGE 11 OF 13 23. Select the Dow Jones Industrials, which is probably the last entry in the list. Press the T key to "tag" that security as the base for relative strength. The caption "DJIND for rel.strength" should ap- pear at the bottom of the screen. 24. Select a stock (other than the one used for testing in Tutorial Part 2). Press G and you will see its graph. Press the alphabetic O key to get into the Graphics Display Option screen. Press the R key to activate the Relative Strength feature. Finally, press G again. You should see the relative strength graph. 25. Note the vertical scale is calibrated in percentages with a zero reference line. Each plot depicts the increase or decrease in price relative to the earliest price on the chart. The solid line repre- sents the selected stock; the dotted line represents the Dow Jones Industrials which was tagged as the base for relative strength. The purpose of this chart is to examine the performance of a selec- ted security in relation to the base, which is usually a composite index such as the Dow Jones or S & P 500. TUTORIAL GUIDE PART 3: GRAPHICAL ANALYSIS PAGE 12 OF 13 26. On the relative strength chart, the 0-9 and + and - keys are still active so you can effectively "zoom" and "scan" through the data graphically. 27. When finished viewing, press the Esc key to return back to the Stock Select screen. Note that all graphics options are retained by the program until they are changed again. In addition, the graphics density (which is set by pressing a 0-9 key) is retained. This is true for EACH INDIVIDUAL security, so you can retain different graphics options for different securities. 28. Press the Esc key again to go all the way back to the Master Menu. Press V and then <Enter>. Select graphics color 1 or 2 (even if you have a monochrome monitor). Or select color 3 or 4 if you have a color monitor. 29. From the Master Menu again press S to see the Stock Select screen, then press G to see the relative strength chart again. Note the difference! This graph has about half the horizontal resolution of the previous one, but the same vertical resolution - plus color. TUTORIAL GUIDE PART 3: GRAPHICAL ANALYSIS PAGE 13 OF 13 30. Press alphabetic O to see the Graphics Display Option screen. Acti- vate the VOLUME feature; then press G again and look at the graph. Note that all of the graphics options are still available, and the 0-9 and + and - keys are still active. You may not see moving aver- age lines or other details on some laptop computers. On a mono- chrome monitor the moving average lines may show as different shades of the foreground color. Try other colors and other graphic options to see what you prefer to use on a more regular basis. NOTE: Getting a moving average to display is a TWO-STEP process! First, you need to make sure its period is set; you do that from the Historical Data Entry screen using the M function (see Chapter 16). This causes the program to start calculating and maintaining that moving average. Second, you must ACTIVATE that moving average from the Graphics Display Option screen. 31. This completes the Tutorial. Read Chapters 18 and 19 for more de- tailed information about graphics features.