How to read Beachman's stock charts
HowTos: My favorite technical indicators and how I use them in charts
Over the past 12 months, we have been experimenting with chart setups and technical indicators using TradingView. I have tested several pine script code-based signals to identify reliable methods to enter new positions, trim current holdings and even sell a stock when merited.
This post will introduce my latest chart setup and most promising technical indicators to date. Please bookmark this post as needed for easy future reference…
Keeping it simple
As you know, I like to keep things simple when it comes to my investing process. I look at lots of underlying data and several metrics for a given company. However, I prefer to boil things down to a few attributes that really matter to me, with a strong preference for leading indicators and trends.
I follow the same mantra when it comes to stock charts. Fewer indicators that provide the most actionable information at any point in time.
Let’s use the 1day (1d) chart for AAPL below as an example.
Technical indicators
This is the chart setup that I use most frequently. My charts have two sections with several unique indicators in each. I usually look at about 12 months of daily price history on a logarithmic price scale (right axis).
Main section
Daily price candles (BLACK candles).
19-day exponential moving average (ORANGE line) which tracks 1 month’s price.
50-day simple moving average (RED line) depicts 3 months’ price history.
200-day simple moving average (BLUE line) shows what happened over the past 1 year.
Price volume profile (Horizontal RED or GREEN bars) denoting buy or sell tendency at each price level.
Daily trading volume (GREEN vertical bars indicate more buying versus selling that day & RED vertical bars indicate the opposite).
20-day simple moving average (PURPLE line) denoting 1 month’s average daily trading volume.
Key indicators
Beachman’s preferred buy price points (“BUY” black text & GREEN dotted horizontal lines).
Beachman’s preferred trim price points (RED dotted horizontal lines).
CALL resistance (Thick RED dashed horizontal line) where options traders are selling covered CALLs which tends to hold the stock below that price level.
PUT support (Thick GREEN dashed horizontal line) where options traders are selling PUTs which tends to push the stock above that price level.
BUY signal (GREEN up arrow) that marks a bullish shift & strong upward, positive price momentum.
SELL signal (RED down arrow) that marks a bearish shift & strong downward, negative price momentum.
Lower section
Unbound RSI (GREY line), a more sensitive relative strength indicator.
Overbought / Oversold (vertical RED or GREEN thicker shaded lines).
Volume Flow (horizontal GREEN or RED shaded area).
Volume Flow 19-day exponential moving average (BLUE line).
What Beachman looks for
Reading charts, often, seems to be more of an art than a science. However, the indicators above help me eliminate much of the ambiguity so that I can clearly decide what to do next.
BUY and SELL signals
Those GREEN up arrows and RED down arrows (in the main section) are quickly becoming my favorite technical indicators because they tell me when there is a bullish pivot towards strong upward, positive price momentum….and vice versa. I use them (on the 1d chart) to enter a new position, to add to an existing position or to trim a current holding. I also use them to identify when a stock may have truly bottomed or is ripe for a significant tumble lower.
I have back tested this signal against multiple, past market drops and surges. It seems to be quite reliable, except in choppy, sideways price action. I am now trying them for short term trading using the 1h and 4h timeframes.
Buy and Trim price points
To find good buy price points, I look for where the stock has found price support in the past. These are often where the stock has tested the price level multiple times and subsequently either stayed there or moved higher. The more times the stock has tested that particular price, the more reliable it is for future buying.
The 50dma and 200dma are often solid buy points because trading algorithms use them as buy price points.
The horizontal volume profile bars show how much & the nature of trading volume that took place at each price level. A RED bar denotes that there was more selling at that price versus a GREEN bar signaling more buying at that price.
Now, all of this works in reverse for trim price points…meaning upper resistance that the stock struggles to cross above.
My preferred Buy and Trim price points combined with the BUY and SELL signals discussed above can serve as very strong indicators for an investor.
Mean reversion
In the lower section of the chart, the vertical RED or GREEN shaded lines tell us if a stock is overbought or oversold respectively. The darker the color, the more valid and actionable the signal.
An unbound RSI below the 0.00 level along with the GREEN oversold signal strongly denotes that the stock is oversold and ready to mean-reverse higher.
An unbound RSI above the 100 level together with a RED overbought signal serves as a warning that the stock is overbought and could revert lower.
Now if these mean reversion signals coincide with my preferred BUY price points or Trim price points as well as the BUY and SELL signals…well, that’s an I-must-do-something Holy Trinity on a chart…Alleluia!
Price trend
When a shorter time frame moving average crosses above a longer time frame moving average, it usually denotes bullish, higher demand for the stock. 50dma crossing above the 200dma is called a golden cross (bullish signal) and vice versa is called a death cross (bearish signal). The crossovers between the 19ema and 50dma give us bullish or bearish signals over a shorter time frame.
In the AAPL chart above, the 19ema crossed above the 50dma in early May. This bullish signal was confirmed by a golden cross in mid-June.
More buyers or sellers?
The volume flow indicators in the bottom section tell us if there is more buying or selling of the stock over a longer time period. This information is not actionable in the moment. It is only useful as a broad signal over a 3 to 6 month or longer time period.
After strong buying accumulation for most of 2023, selling of AAPL stock picked up in Jan 2024. This was likely related to BRKB selling a chunk of their stake in the company through mid-2024. Since Aug 2024, more buyers started stepping in.
Everyone has their preferences for how they digest information and how they communicate with others. Similarly, investors tend to lean on their personal favorites when it comes to technical indicators on a stock chart.
For me, an indicator should be actionable or else it is just noise on the screen. I like to try out new chart indicators, but I quickly take them off it they are not helping.
Less is more when it comes to technical charts.
Oh btw, irrespective of what all the signals are telling us, sometimes the best course of action is to sit on our hands and do nothing.