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How To Read Stock Charts -- A Beginner's Guide
One of the essential tools for securities trading is the stock chart. This chart details the rise and fall of the stock’s price as time passes by. To the casual observer, it looks like a bunch of colored lines and mountain cross-sections. To the trained observer though, they prove useful in analyzing the performance of a company’s stock, providing bases for predictions on future behavior. To the stock trader, they are the very bread and butter of livelihood, the number one tools in the battle of high finance. If you are interested in trading securities, then you had best learn how to read stock charts.
Learning how to read stock charts can differ based on the representation used. Regardless, they all share the same mathematical axes. On the x-axis or horizontal movement is time, while the y-axis or vertical movement represents the change in price. That means the chart is read from left to right, such that you can see the prices rise and fall as time passes by.
Line graphs are among the most common and simplest of these stock charts. Though they are good for spotting trends, they are not quite as useful because they exclude many of the details. For example, they do not show open and close prices, as well as the highs and lows of the stock. As a day trader you may want more resolution than that.
Kagi charts and renko charts are, like line graphs, pretty popular for long-term traders, but not quite so useful for day traders. The time intervals on kagi charts are not uniform, and they only mark points when significant rises or falls in price occur. Renko charts make it easier to read changes according to preset intervals, but they are not too practical for the day trader.
Bar charts and candlestick charts are great choices for the day trader because they show the highs and lows, plus the open and close prices. Candlestick charts in particular give a very concise and uncluttered presentation of the data you need to know as a trader in the securities market.
As to learning how to read stock charts to predict future price movements, you need more than just the ability to spot trends. Sure, it may look like it is rising now, but it could easily take a downturn after you buy. Or what looks abysmal at the moment may be revving up for a meteoric rise. The thing is, the trends and predictions on the securities market are like weather forecasts – they are good to work on, but you cannot avoid reversals of fortune.
If you want to lessen the gamble and inject some more science into your day trading, you will want to take up online courses on the subject. Not only will you learn how to read stock charts, you will also learn how to buy stocks to maximize profits and how to sell to minimize losses. You can also learn some strategies, but ultimately it will be up to you to find a strategy that works for you.
About the Author
Shane is a financial advisor, stock broker, and professional consultant. He enjoys reporting on the latest stock market happenings and offering advice to both fledgling investors and experienced day traders.
Visit his site to learn more about how to read stock charts and How to Buy Stocks.