Let me explain why it is so essential to at least upgrade to this type of chart. Think of the stock market as a battlefield. The bulls, which are those who think the stock will rise, are perpetually at war with the bears, which are those who think that the stock will fall.
You can use the relationship between open, high, low, and close to gauge who is winning this battle, and on which side you should bet your money. The next graph is a zoomed in version of the above graph, and should help you see what I mean.
Looking at the above chart, at example one, you can see that prior to this day, the bulls are dominating the bears, as evidenced by rapidly rising prices. On the day that example one occurred, the price opened at a higher price than the previous days close, and there is nothing special about this, since GDX (a gold stock fund) was in an uptrend. What is interesting however, is what happened after.
What occurred is that the bulls, feeling confident, pushed prices much higher during the day, but then, the bears came out and took control away from the bulls, and wrestled the price much lower. So low, in fact, that by 4:00 when the market closed, the price was below the opening price. This was clearly a harbinger of things to come, as this day marked the top of the uptrend. Clearly, you would have missed this with a close only chart.
Now, let's have a look at example 2. Example 2 is basically the exact opposite of example one. The bears were clearly in control, as shown by the downtrend. The bears push prices deep into the red, but then the bulls step in and close the prices near the high of the day. This represented a major victory for the bulls, and it was clear that it was safe to bet your money on them.
To move on to stage 3, please click here.
