Tulvio,
As one of the 'older' P&Fers around here, I liken reading chart patterns that oscillate over the Chartcraft 'breakpoints' (5,20,100,etc) to looking through bifocal eyeglasses, where the thing you are looking at is bisected by the junction of the lenses.
The price crossing the breakpoint to the downside 'amplifies' the daily price noise that gets 'filtered' out as the price once again goes up over the breakpoint. If you think the price is going to continue to the upside, it is best to then only look at the current pattern as if formed by the new 'higher' box value. If the overall price is on the decline, then looking at the pattern in the 'lower' box value is more appropriate. I say this because those are the box values regions where you expect the pattern to continue forming.
IMO it is best to view those occasions by looking at the patterns formed with a fixed value at both of the box scalings ie the $1/box and the $2/box charts. If there is a major difference, then try $3, $4, $5 and look for the larger pattern.
But I still recommend log scaling because it has none of these problems.
BTW log plots are very easy to come by. Visit my web site, download the free shareware trail version (60 days) of EZ-PnF. It creates user specified percentage log scale p&f charts, or user specified fixed box value p&f charts or Chartcraft scaled p&f charts. All you do is 'press' a radio button and enter the user specified value. The registered version ($20) comes with free data import utilities that let you directly use the free historic quotes that anyone can download from Dreyfus Brokerage, Microsoft, or Yahoo! Finance. If you are looking at a new stock or hear about one, it is very easy to jump to one of the sites, do a quick download and then examine the charts in all the various views.
Oh, one more point.... log charts solve the 'pattern change' problem that occurs when a stock splits, as well. And right now there are lots and lots of high flying stocks that are splitting.......
Ben A.
ez-pnf.com |
