The Transparent RRSP: Reading Candles

 

No actions were taken this week for the Transparent RRSP. Instead, I’m going to do a bit of analysis of the price information of ZPR, the BMO Laddered Preferred Share Index ETF. This is the only security I have in the Transparent RRSP account so far.


Some Chart Basics

We’re looking at the price history charts of ZPR. Each red or green candlestick bar (also known as a candle or a bar) shows me the price range traded within a certain amount of time.

zpr

The price history charts of ZPR

On the DAILY chart, each candle represents the price range traded in one day. For the WEEKLY, each candle represents the trading range of one week; the monthly chart has each candle showing a month’s trading range; then the yearly chart shows an entire year’s worth of trading.

A candle is green if the stock closed higher at the end of its trading period than at the start. The candle is red if the trading period closed below its opening price.

Sometimes you see an extra “wick” to the candle at the top and/or bottom of it. It’s there to identify the full trading range of price. This can be extremely informative when you combine this information in relation to trading volume.

candles-values

The reason why it’s important to have your positive and negative colours different from one another is so that you can see visually where the price opened or closed without having to look it up.

no-colour-candles

What is the opening price? The closing price? I can’t tell!!!

See how confusing it is? The candles can, however, be the same colour as long as one of them is hollowed out. The point is, positive and negative candles should look different from each other.

On the bottom of the chart, you will see corresponding candles that refer to the trading volume that happened during that trading period. The trading volume is red if more shares that traded in that period were sold; it’s green if more shares that traded in that period were bought.


Now I’ll do a bit of analysis for our beloved ZPR.

zpr

At #1 on the chart, you can see where I bought shares of ZPR for my TFSA in November of 2015. It was an aggressive entry. I was very drawn to the massive trading area (labelled “ROOM TO ZOOM”) that this stock could move up into. This is a high-risk entry because I had no other reason to enter other than the price dropping severely, which made it cheap.

What happened after humbled me. (Every trader can speak to being humbled by price action that contradicts big, unrealistic expectations.) I was under water for over a year after that.

Now, look at the weekly chart’s candles after the #1. There was high volume selling, followed by high volume buying.

After that, at the start of 2016, there was more selling — but the selling volume was lessening. The buying volume, however, was greater than the selling volume that followed. To me, this signifies a massive tug-of-war between buyers and sellers over the stock at this price. Investors seem to be interested in the stock at this price. Could this be the bottom?

When you look at the weekly and monthly charts, you can see the price ranges tightening and getting smaller. During the spring and summer months, you can see that the trading volume has gone down. I refer to this as a stock being quiet. When a stock is consolidating quietly, I really start to listen! Why? Because if the volume starts to increase, it means a major accumulation of shares is happening at around a small price range.

You can see the volume increasing since the fall of last year, yet the trading ranges are still small. As the demand for shares at a certain price increases, fewer shares are available at this price. This drives the share price up as more investors are willing to pay more for something they regard as valuable or potentially valuable.

#2 is where I entered for the RRSP account on January 4 and I entered at almost the exact same price as I did in November 2015. This 2nd entry, however, is much better because I have much more information to work with. I entered here, above all the drama that happened over the last year and I still am at the same point where above there is room to zoom up.

Is it a guarantee that this stock won’t go down in price again after this? No. I will point out that what made being under for a long time less painful was receiving a nice dividend payment every month from this stock. As the stock goes up in price and as it becomes hot again, the payment could increase, which will be very nice (it used to pay a higher monthly dividend than its 0.045 cents per share).


I’ve mentioned before that I have a feeling that I will be growing old with this stock. JP and I have been loading our other accounts with ZPR shares because we intend to be living off the income this ETF (among other dividend-paying stocks) produces for us in our retirement years. If it goes down in price again, we’ll very likely be buying more shares of this one. Once we have enough monthly investment income to live on, our only hope after that is that all our securities go up in price.

 

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