How do you set up your charts when looking for a stock trade

One of the most common questions is: "How do you set up your charts when looking for a trade?"

First, you have to know the basic timeframe of the trade you are about to make. Is this going to be a 30-200 minute trade? A 1-2 day trade? A 3-4 week trade? Having at least a vague idea of the expected hold time of your trade is important in knowing what length of past history is relevant to your trade.

As a basic rule, I believe the most important chart is going to be one that shows approximately 8-10 times the length of time that you expect to hold the position. Example---if you are looking at a 30 minute trade, you should be looking at a chart that shows the last 300 minutes of trading activity on that stock (5 hours). If you are looking for a 3-4 day swing trade, look for a one month (30 day) chart--this is the setup we have used to get the huge profits that we have seen in our Small Cap Trading System.

Second, I almost always use candlestick charts, and we like to set the candlesticks at a duration that is about 1/20 (very approximate---the point is to have each candlestick as a small part of your trade when it is completed) of the estimated hold time of my position. If I am looking for a 30 minute trade, I will use a one minute candlestick. If I am looking for a 5 day swing trade, I will set the candlesticks at every 2 hours or so. This gives you a chance to see patterns in the sticks while still keeping enough of them on the screen to see the trend from stick to stick.

Now you need to set up your indicators. At first, the only thing other than the price that I want charted is volume. Don't worry about putting any other indicators up until you are working to DISPROVE your theory. I always set up volume as a separate panel below the chart, but I know plenty of traders who like to overlay---it is personal preference.

Just so you know, we may look through 200-500 charts before ever spotting a big-profit trading opportunity in some cases, and other times I may see 3 in a row. By looking at price and volume alone, I can usually tell if we want to trade the stock within 3 seconds of looking at the chart. Of course when you first get started it won't be as quick for you, but YOU SHOULD NEVER HAVE TO LOOK HARD FOR A REASON TO TRADE A STOCK. As a trader, your job is to find the chart, the stock, the position that jumps out at you as a real opportunity--not to convince yourself why you should buy XYZ.

Once I see a chart that looks like it has real potential (solid trendline on increasing volume, nearing a triple top, exaggerated gaps, etc.) I will then try to DISPROVE my theory. That is when it is time to bring out all the indicators that you like to use (moving averages, Stochs, RSI, etc) and use them to try to prove your theory wrong. Look for reasons not to make the trade. Most traders see a chart they like and then bring out the indicators to support themselves. YOU WILL ALWAYS SEE WHAT YOU WANT TO SEE! Look for ways to dismiss the trade, and if you still can't find any big holes in your case, execute!

Here is a quick review of the important points:

1. Determine your projected hold period

2. Look at chart that is 8-10 times as long as projected hold period

3. Use candlesticks of approx 1/20-1/40 of projected hold period

4. Filter out all the charts that don't have clear pattern or trend that you like

Disprove your analysis with indicators---DO NOT look for reasons to support your original thought.

Execute the one that makes it through.

Mouser57 of Penny Stocks and Canadian Stocks Stock Message Board