Weekly charts are the best time frame to spot longer term trends and chart patterns in stock prices. On a weekly chart, each bar represents one week of price or volume history. This means that weekly charts are able to offer a longer view of a stock’s price history. Studying what a stock has done in the past is just as important as assessing its current condition in order to evaluate its potential.
The Benefits of Weekly Charts
Using weekly charts instead of daily or intraday charts gives you the advantage of focusing on the predominant longer-term trend, while ignoring the “noise” and volatility of the day-to-day fluctuations. This may make it easier to hold a stock for a longer move, while those investors focused on shorter-time frames may be scared out of positions by short-term volatility. Keep in mind, institutional money managers that have multi-million dollar positions can’t move fast enough to react to daily fluctuations. They are surely using weekly charts to make buy or sell decisions, and therefore, it’s to your benefit to use the daily and weekly charts in tandem.
Weekly Charts in Stock Chart Analysis
Finally, another great reason to use weekly charts is that most chart pattern characteristics and stock analysis methods are written in terms of the number of weeks. Here are a few examples:
For these reasons, we recommend you start your stock chart analysis on a weekly chart first and then analyze the daily chart for more detail.
Here are some examples of stock chart analysis
Click any of the charts for an enlarged view.
Logarithmic chart scaling
The default price and volume scale for most weekly charts is logarithmic. Logarithmic scale intervals are based on percentage or proportional changes. For example, the percentage change from 1 to 2 (100%) is same as the movement from 2 to 4 (100%), 4 to 8 (100%), etc. This creates an interval scale useful for comparing relative (percentage) change. This allows you to compare stocks charts for stocks that are priced very differently. A 10% move on a $20 stock should look the same as a 10% move on a $200 stock. This is also particularly helpful for spotting chart patterns, since most chart pattern parameters are written in percentage terms. If you are looking for a cup-with-handle pattern that must correct on average 25%, you will begin to recognize the shape and overall look and feel if you are looking for them on logarithmically scaled stock charts.
“Best-Fit” Price Scaling
Many stock charts also have the option to use an alternative, or “best-fit” price scale option. This option usually incorporates all closing prices over a certain time frame (like the previous three years for weekly charts). This produces a price scale where all price bars are viewable, an important factor when viewing stocks with a history of wide price fluctuations. However, using this scaling method prohibits you from making direct comparisons to other stocks that trade at higher or lower prices. For this reason, it is more commonly used on daily and intraday stock charts, rather than on weekly charts.
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