Technical Stock-Picking: How to Trade Off of a Stock Chart

Google 1-Day Chart

Click here for larger image.

Source: Yahoo! Finance

According to Japanese tradition, candlestick charts were invented by the 18th century Japanese rice trader Homma Munehisa, who allegedly could execute 100 out of 100 profitable trades. Each candle in this chart represents five minutes of trading during the day. The height of the rectangle within the candle is the difference between the opening price and the closing price during each five minutes.

If the opening price is lower than the closing price, the rectangle is not filled in, signifying a trend to a higher price. If the opening price is higher than the closing price, the rectangle is filled in, signifying a trend to a lower price. The line beyond the rectangle, either above or below the rectangle, extends to the highest and lowest price in the five-minute period.

On the morning of Dec. 18, 2007, Google sold off about 20 points, from $675 to $655 between the trading day's opening (9:30 a.m. Eastern standard time) to about 10:45 a.m., possibly on short -covering. Buyers came in until a little after 11 a.m., pushing the stock above $660.

The stock traded without a clear trend until about 1:15 p.m., at which point the buyers came in again, pushing the stock up again. At the end of the trading day, Google stock recovered all its losses to close near its opening price. A careful reading of the chart would have provided daytraders with profit opportunities on quick moves.

Your Chart-Reading Assignment

Every week on TheStreet.com and Stockpickr, James Altucher picks his "rocket stocks" for the week -- those stocks he thinks will increase the most in price -- and one of the most important tools in Altucher's stock-picking toolbox is chart-reading.

To learn more about chart-reading, check out RealMoney's Dan Fitzpatrick's Web video segment on TheStreet.com TV, 3 Stocks I Saw On TV.

So here is your technical stock-picking assignment: Find the next rocket stocks on the basis of chart-reading -- these are stocks you think will increase the most in price this week, on a technical basis.

Step 1. On Stockpickr, create a portfolio called "Rocket Stocks Research: [Your Stockpickr Username]." (To create a portfolio on Stockpickr, you'll need to first log in. If you're currently not a Stockpickr member, you can register at www.stockpickr.com/register.)

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