Learning How to Read Stock Charts: Go with the Trends
Posted on 03. Mar, 2010 by Global in Uncategorized
In spite of the fact that trading in stock markets is such an unpredictable business, there is a way to arrive at sound decisions for the future based on results from the past. To avoid too much risk, equip yourself with specific tools that chart the manner in which you invest money. The better-equipped you are with stock charts as a reference, the wiser you will be able to invest. The more willing you are to learn how to read stock charts as tools, the more prepared you will be to use trading techniques effectively.
As you circulate in and around the world of stock markets, you will discover that the business of stock trading is basically all about trends. A trend refers to the direction where prices are leading to. Trends could either go up or down, so you must be very much updated with them on a constant basis.
Trends shift and change daily because they are affected by global factors such as world economy and international politics. When plotted on a stock chart, the critical stock market values of time and price flow along with these factors. If a worldwide crisis happens unexpectedly, all systems could go haywire so that it becomes almost impossible to predict what will happen next. The most you can do as a stock trader is to count on predictive analysis as a tool. Because it is logical, scientific, and informative, it will allow you to make sound decisions.
To learn to read stock charts and understand trends better, here is the logic behind them:
1. Trends tend to have a direction. In general, a trend would last for 6 months and onward. One of the first indicators you have to look at carefully in stock charts is the trend of the stock price.
2. Stock market trends do not only go up or down. They may also remain constant over a period of time in a stage called consolidation. When consolidation is still in progress, you will observe no specific trend. Here is where you must be very observant about any changes, small and subtle as they may be.
3. At times, the changes can occur abruptly. These upward and downward spikes are indicative of major changes within the operation of a company and they trigger reactions in stock trading. To be ahead of the game and on top of the situation, plan ahead for contingency measures in case of spikes.
4. Along with stock price, time is of utmost essence. Its moving averages or MA would reveal to you the current trend. Time is usually measured in lengths of 20 days and 50 days MA. If your 20-day MA shoots above the 50-day MA, stocks are trending up. If the reverse occurs, stocks are trending down.
5. How you buy and sell your stocks is affected by this trending up and trending down. The basic premise is to buy stocks while they are favorably trending up and to sell them when they are continuously trending down. This is the best way to maximize profit and minimize loss.
When you see how price, time, and trends are visually reflected by stock charts, you become better-informed. Because stock charts can be very telling, look carefully at where they are trending. They will make the unpredictable easier to handle and make you so much wiser in deciding when or how to buy stocks and sell them.
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.
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