Reading Stock Charts Can Be Greatly Helpful-Do You Know How It’s Done?

Reading stock's charts is a must

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Reading stock charts is very essential to me if you’d ask me. What do you think about them?

If you trade stocks you should at least know what’s a stock chart.

But do you know how to utilize them in your advantage? Because just knowing what’s a stock chart is definitely not enough to cut it.

Therefore, you have to know what you should be looking for when you’re looking at a stock chart.

In this blog post, I’m going to dissect some of the most important points in the hope that you’ll find some of them helpful to you.

Hopefully you can utilize them in your future trades.

Let’s start from point one…

What’s a stock chart?

It’s basically a graph that provides traders and financial analysts information about a company to know whether or not they can invest into this company.

Although there are so many different type of stock charts, such as line charts, bar charts, OHLC (open-high-low-close), candlestick charts, mountain charts, point-and-figure charts, and many others.

Most stock traders feel more comfortable with the candlestick charts.

They feel it’s simple to follow and understand which I myself agree with.

Reading stock charts can give you a clear preview of what to expect; note that I say “expect,” it’s because you will never be too certain of your findings.

How should you go about reading stock’s charts.

First, you should ask yourself some questions as you’re looking at a stock’s chart.

Reading stock’s charts is one thing, knowing what to look for is another

These following questions are just a few, but they should give you an idea as of how you should start before you dig deeper into your charts.

Here they are:

1- What trend is it currently in?

2- What stage is it?

3- How’s the volume?

4- Where’s the breakout? If any.

5- Where are the supports and resistances?

Answering these questions and some more can help you going through your stock’s charts in a more reward-able way.

There are four stages in any stock’s chart.

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Each stage has a specific meaning as you can visualize here in this picture. For example, if we were to start trading at the fourth stage we would be most likely to lose our money unless we go short.

On the other hand, trading at stage 2 would make us some money given that we’re able to sell our positions at the right time.

Once you’ve known in which stage the stock is you can look for the trend. The order of these two methods are not really import so long you know how to spot them.

Finding the trend of a stock from its graph is quite simple, yet many traders have difficulty finding it. As soon as you glance through a stock’s chart you should be able to see whether or not its price is increasing more than it’s being decreased.

That’s what we call an upward trend (Bullish); a downward trend (Bearish) is just the opposite.

One technical analysis many stock’s professionals utilize to be sure of a trend is the use of the moving average signal.

When the stock’s price has crossed the moving average going on the upper side, financial analysts refer to that as the beginning of a bullish trend, which is what you’d be looking for.

If it was to cross the moving average going downward that would be the beginning of a bearish trend.

Whether you use this analysis or you just look at a chart to seethe trend, your job would still be simple for this strategy.

The most important part is to know that you have to look for it which should helps you knowing where your money will be headed once you’ve acquired your shares.

The stock’s daily volume could be helpful to you as well. Stocks’ shares demand is very sensitive to price; meaning that demand is very elastic when it comes to stock trading.

According to NASDAQ,

Elasticity of demand is The degree of buyers’ responsiveness to price changes. Elasticity is measured as the percent change in quantity divided by the percent change in price.

Since demand in stocks is said to be elastic to price, as their prices are going up we would see a fewer number of buyers. We can also have a debate out of this since in penny stock trading we do have the option of going short depend on your brokerage’s account.

With that being said, a stock that’s increasing in volume could be a good sign for traders. It tells us that we may see a breakout soon.

What about the breakout? When a stock is able to break its resistance then we say there’s a breakout. Traders usually like to buy shares from stocks after the resistance has been broken.

The first breakout is also the early stage of stage two, remember that there are four stages in stock’s charts that you’d need to be familiar with.

Looking for the Support and resistance worth your time. The support is when the stock can’t go any lower, every time it hits this low it has no choice but to bounce back up again and again.

But it has to happen on more than one occasion, hitting a low price once and go up in price is not considered a support.

Resistance is the opposite. The stock fails to cross this price going upward every time it hits it. Knowing these two concepts can give you a sense of assurance.

It also tells you where you can set up your stop-loss, or where you can pick to sale and take your profit.

Conclusion

Reading stock charts is a must know technique if you’re a stock trader. As you can see there’re many ways through which knowing how to read stock’s charts can help you to minimize your losses as you’re maximizing your gains.

This was just a few points on reading stock’s charts. There’re many other different techniques or signals within stock’s charts that are very helpful.

I will write about them in the future in the hope that you’ll find them useful through your daily trades.

Now that you’ve read this post about how to read stock charts, share with us some of the techniques you’ve been using to maximize your gains.

Go ahead do that in the comment section!

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