Category: Finance

First of all, what is a chart? A chart of a stock graphs a stock’s price on the y-axis, and time on the x-axis. You probably are familiar with simple line charts, but candlestick charts provide more information and are more commonly used.

Look at the diagram of the chart below. The box, or “candle” is the body of the candle. Each candle represents a certain amount of time, usually a day. The wicks of the candle are technically referred to as the “wicks,” but they are referred to by their purpose (high or low) in common language. The ends of the body are formed by the opening and closing prices of the security during this time period. If the body is filled with a color like white, green, or a light color, then the security was up in that period of time, and the bottom of the body is the opening price and the top is the closing price. On the other hand, if the body is filled with a color like black, red, or some other dark color, then the security was down in that period of time, and the top of the body is the opening price and the bottom is the closing price.

The wick shows the extremes of price action during the time period. The upper wick is the line extending from the top of the body to the highest price ever reached (during the specified time period), and the lower wick is the line extending from the bottom of the body to the to the lowest price ever reached. Sometimes, one or both of the wicks are not seen because the opening or closing price is also the highest or lowest price.

Here is some more terminology: Let’s say that we have a chart where each candle represents a day, and there are enough candles to show the past year. That would be called a one-year daily chart. If each candle represented an hour, and there are candles going back 180 days, then it would be a 180 day hourly chart.

Also, be careful not to confuse candlesticks with OHLC (open-high-low-close) charts. Candlesticks have a rectangular body, while OHLC charts are lines with tick marks on the vertical line. The candlestick has many advantages over the traditional line chart. When we get into more analysis, we will see that candles can show buying and selling pressure throughout the day and provide earlier indications of market reversals. As a result, many traders use them and some even base strategies off of them. However, candlesticks do not always tell the sequence in which events happened (e.g. whether the high or low came first). Many websites, like FINVIZ and TradingView, use candlestick charts by default.

– Michael Trehan

Hello from the Finance Club 2014 Officers!

President: This is the education blog, which is written by our VP. Usually, this one will be published on Sundays. So, for our first issue… what does SHORTING a stock mean?

Vice President: Shorting a stock is method by which one can make the most money if the stock goes DOWN. We have all heard the phrase “buy low, sell high.” This is the same idea in reverse, so our goal in shorting is to “sell high, buy low.” In order to do this, we would:

1. Borrow shares of a stock (typically from a broker).
2. Sell the shares on the open market.
3. Wait for the stock price to decrease.
4. Once the stock price has decreased, buy the same number of shares from the open market.
5. Repay those shares to our lender to close the trade.

For example, Jason, a value investor, believes that QRS stock, currently trading at $70, is heavily overvalued. To short the QRS stock, he first borrows 100 shares from his broker. He then sells his borrowed shares of QRS on the open market for $70 * 100 = $7,000. Eventually, he must buy back the shares from the market to repay his broker. Three months later, when the price of QRS falls to $55 a share, Jason buys 100 shares from the open market for $55 * 100 = $5,500. Finally, he gives his broker the shares he just bought to close the trade. Through shorting, Jason has realized (or made) a profit of $7000 – $5500 = $1500. Of course, there are commissions.

In order to short a stock on our stock simulator:

1. Go to www.wallstreetsurvivor.com and log in.
2. Scroll down to the section that says Make a Trade and click on the title.
3. Type in the stock to be shorted in the search bar.
4. When it asks if you want to buy or sell, expand the bar and click Short.
5. Decide the type of order you want and how many shares you want to short.
6. Make the trade.

To close the trade:

1. When it asks if you want to buy or sell, expand the bar and click Cover.
2. Enter in the same number of shares you previously shorted.
3. Decide the type of order you want (ex. limit, market, etc.)
4. Click the Trade button to close the trade.

– Ken Croker, VP.