Money makes the world go ‘round is not only a famous saying; it is a basic truth. You cannot get anywhere in life without having cash or an opportunity to get it. Because of the significance of money, people often obsess over monetary gain, and with such an obsession can come a compulsion to invest. Unfortunately, learning how to invest is a long process that many people may not have the patience for.
One crucial aspect you cannot ignore if you want to become an investor is learning how to read stock charts. The features of these charts can help you predict future outcomes and play the odds in your favor.
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What Are the Feature and Benefits of a Stock Chart?
Learning how to read stock charts includes learning about the chart’s information and how to interpret it to take advantage of its benefits for the trader. Stock charts have at least four pieces of vital information for the savvy investor.
First, the chart provides the stock symbol and the exchange. For example, NYSE stands for the New York Stock Exchange. Second, the chart specifies a period in the history of the stock. The period can be daily, weekly, monthly, quarterly, or annually. Third, you can see indications of a price change that represent the opening, closing, and high and low values. Finally, the chart should show the last change to occur. Understanding each of these core components of the stock chart can help you make more informed decisions in the future.
Who Can Use a Stock Chart?
A stock chart is a tool used by investors, traders, and stockbrokers. By showing information about a particular stock’s historical values, these professionals, as well as amateurs, can judge and assess the health and future of the stock price, allowing them to decide to invest or not.
A stock chart can show investors how fund managers are acting; they can see if they are unloading shares quickly, indicating depreciation, or if other investors are stepping in, encouraging potential gains. Knowing how to read a stock chart means being able to see the subtle shifts in thinking over a strategy. Once you know how other investors are reacting, you can make a more informed decision about your own investment.
When Should You Use a Stock Chart?
Knowing how to read stock charts is not the same as understanding when to use them. You need to base your chart-reading strategy on the investment or stock you are researching.
For example, you can review historical charts or daily charts. The daily charts are valuable tools for learning about the price and volume activity at specific time-sensitive moments. On days of industry changes or company testing, access to current charts is the most beneficial. However, if you are considering investing in a stable industry with little fluctuation in price over time, looking at historical graphs might be enough. In either case, stock graphs enable you to see the historical and real-time data necessary for investment decisions.
Examples of Using a Stock Chart
Knowing how to read stock charts allows you to look at a company’s historical data and spot trends. You can tell if Apple hitting $130 per share is a fluke or something likely to happen again. It is not uncommon for a stock to show varying periods of ebbs and flows.
How To Read Stock Charts
While mastering chart reading is not something that happens overnight, a novice can get better at it. Learning how to read stock charts comes down to understanding and identifying four specific attributes:
- The trend line: The trend line is the blue line on the stock chart, representing the stock value. These lines routinely dip and climb, and it is essential to avoid reacting emotionally to such spikes.
- Lines of support and resistance: The lines of support and resistance represent the range of values a stock will stay within over a given period. Support means the price a stock is unlikely to drop below, and resistance the price it is unlikely to go above.
- Dividend and stock split: The bottom of the chart shows when a company issued dividends or created a stock split. Dividends are profits split with shareholders. A stock split represents more shares offered to the public.
- Historic trading volumes: The very bottom of the chart shows the trends for trading volumes throughout a period. These numbers are good to know but not vital to investment decisions.
When reviewing a stock chart, there are a few things you want to identify. First, find the trend line and determine whether it is going up or down. You also want to the lines for support and resistance. Another concern is identifying historical trading volumes and knowing when dividends and stock splits occur.
While many types of stock charts exist, most investors are more familiar with those used for technical analysis. There are four chart types that are common among investors and traders alike: bar charts, line charts, candlestick charts, and point-and-figure charts.
While novice investors might look at a stock chart and see nothing more than a rising or falling line, savvy investors see charts for what they are: historical data sets. The lines and values on a chart help investors make predictions about the future earnings of specific stocks.
Learning how to read stock charts is one of the differences between remaining a novice and become a real investor. When you understand the historical ranges of a stock, you can better predict future outcomes, and while your predictions might not always pan out, you can feel more confident in your understanding of the numbers. When you’re ready to move forward check out our look at the Best Online Brokerage Account For Beginners