How to treat chip distribution (reading trends and gaining insight into market sentiment)

How to treat the chip distribution map (reading the trend and gaining insight into market sentiment)

Chip distribution chart is a common tool for stock market analysis. By observing the chip distribution of stocks, we can interpret the trend of stocks and market sentiment. This paper will introduce the basic concept and operation steps of chip distribution map, and explain how to use chip distribution map to gain insight into market sentiment through examples.

What is the chip distribution map?

Chip distribution chart is a stock analysis tool based on price and volume, which helps investors understand the buying and selling power in the market by showing the distribution of chips in different price ranges. Chip distribution chart usually consists of histogram and line chart. The histogram represents the number of chips in different price ranges, and the line chart represents the accumulation of chip distribution.

How to draw the chip distribution map

In order to draw the chip distribution map, it is necessary to obtain the historical trading data of stocks, including daily opening price, highest price, lowest price, closing price and volume. Then according to these data, the number of chips in each price range is calculated, and histograms and line charts are drawn.

The specific operation steps are as follows:

Choose an appropriate time period, such as daily, weekly or monthly.

To determine the price range, you can usually choose the historical highest price and lowest price of the stock as the range.

Divide the price range into several equal parts, such as 10.

Counting the number of chips in each price range can be estimated by calculating the ratio of daily turnover multiplied by the price range.

Draw a histogram, with the horizontal axis representing the price range and the vertical axis representing the number of chips.

Calculate the accumulation of chips and draw a line chart. The horizontal axis represents the price range and the vertical axis represents the cumulative number of chips.

How to interpret the chip distribution map

According to the chip layout, the following information can be obtained:

Market sentiment: when the number of chips in a certain price range of the bar chart is large, it means that there is more buying and selling power in this price range and the market sentiment is fierce. When the number of chips in a certain price range of the histogram is small, it shows that the buying and selling power in this price range is weak and the market sentiment is relatively calm.

Support level and resistance level: when there is obvious fluctuation or inflection point in the line chart, it shows that there is strong support level or resistance level in the price range. When the line chart rises or falls to a certain price range, it may be supported or resisted by that range.

Trend judgment: By observing the trend of bar charts and line charts, you can judge the trend of stocks. For example, when both bar charts and line charts are on the rise, it means that the stock is on the rise; When both the bar chart and the line chart show a downward trend, it shows that the stock is in a downward trend.

Interpretation of chip distribution diagram with examples

The following is an example to interpret the chip distribution map. Suppose the chip distribution of a stock is as follows:

(Insert chip map picture here)

As can be seen from the figure, the number of chips in the third price range of the histogram is the largest, and the market sentiment is fierce. When the line chart rises to the third price range, an inflection point appears, indicating that there is a strong resistance level in this price range. On the whole, both histogram and line chart are on the rise, indicating that the stock is on the rise.

Through the above interpretation, investors can judge market sentiment and stock trend according to the chip distribution map, so as to formulate corresponding investment strategies.