Stock charts can be an especially useful tool when it comes to navigation of volatile, unpredictable markets. Whether day or night, a stock market is constantly changing, making it difficult for those who do not have the experience necessary to keep track of the movements and reactions of their portfolio. A stock chart is a visual representation of the stock as a whole, showing price activity over a set period of time. While stock charts are most often used to identify trends or gauge performance, there are other uses as well. In this first installment of an ongoing series on stock chart reading fundamentals, you will learn what is actually in a stock chart.
Stock charts may be simplified for easy navigation, but they still provide valuable information about specific companies, events, or trends. A simple stock chart can show the name and stock value of a particular company or identify specific financial data about a company. A stock chart can help investors make buying and selling decisions and is particularly important when considering investments in companies that are very different from their own businesses. For instance, when making the decision to purchase stocks of a food processor that makes pasta, the financial data presented may not directly apply to that particular processor but the same basic principles may apply to different types of stocks.
There are many ways to navigate stock charts, but the simplest are probably those designed to teach novice traders how to read stock charts. These charts were initially designed to simplify the complex process of investing, showing traders which stocks to buy and which to sell based on their performance. However, with the advancement of the Internet, stock market investing has become a complex, lengthy process requiring vast amounts of research to become successful.
Traders must now evaluate and select investments according to their overall investment goals, risk tolerance, and skill level. Beginners often begin by selecting stocks on traditional strength or momentum indicators, such as the S & P 500’s performance in relation to other companies’ shares. More sophisticated traders then use technical analysis, looking for patterns in stock charts such as moving averages or support levels. They look to establish what factors caused the trend to form, and study the consequences of removing these factors from the chart. Once enough information has been gathered, they determine whether to add to their portfolio or risk another loss and decide whether to get out.
Successful traders can also use news and world events to their advantage. In particular, if a certain stock is affected by an event such as a natural disaster, traders can use the information provided on the chart to make decisions based on the company’s position in the current environment. News related to the environment and economy can affect any company, affecting market prices, stock charts, and eventually stock price movement. If you want to learn how to read stock charts so that you can make more informed stock investment decisions, it is important to understand the importance of global events and how they impact a company’s bottom line.
The various types of stock charts include line charts, bar charts, heat maps, point and figure charts, and trend lines. Each type provides different kinds of information, which traders will need to decide what to do with the information. Learning how to read stock charts will require an understanding of different types of information that can be gleaned from each one.
Bar charts show the price action; therefore, the information is usually shown in two parts. A horizontal line representing the low and high points in the chart and a series of horizontal points representing the closing prices for the past 30 days or so. Line charts, by contrast, display price action over time; the low point being the low point and the high point being the high point of the trading day. Trend lines, which are more complicated than bar and line charts, plot the direction of the trend based on the past price activity.
Learning how to read stock charts will not only help you learn how to invest, but it will also help you make better choices and decisions when buying and selling stock. Understanding when to buy stocks and when to sell them is vital to your overall success as a stock trader and investor. Also, when learning how to read stock charts, traders and investors need to have a firm grasp on market terminology. Technical analysis is an important part of investing, and the terminology of technical analysis should not be overlooked. By understanding the terminology of technical analysis, investors will be better equipped to interpret and analyze the data they see on their chart.