Knowing how to read a stock chart is the key for many day traders as well as swing traders to determine entry and exit points. The more a trader becomes familiar with stock charts, the more he or she will be able to recognize trends and breakout patterns. Here are essential facts to know about reading stock charts.
Stock Chart Components
There are a variety of different stock chart designs, as some use candlesticks while others use traditional graphs. A typical stock chart accompanies basic company information, such as ticker symbols and the day’s trading data, such as high and low prices. A traditional chart shows the trend line, or an outline of stock prices over recent days, weeks or months.
The trend line can be used as a reference in relation to current, high, or low prices. Professional traders usually look at 50-day moving averages to gauge short-term terms and 200-day moving averages to gauge long-term trends. Trend lines help traders determine levels of support and resistance.
Knowing When to Buy and Sell
The goal of studying charts is to develop ideas for when to buy and sell stocks. There are no universal rules one can follow that will always lead to profits. Studying stock charts is the basis of what’s called technical analysis, in which traders learn patterns from historical market cycles. This type of analysis can be very useful for helping traders achieve success if they practice risk management.
Certain stocks, such as Apple, have been more reliable than others at earning profits over long periods. But even successful giants such as Apple have periods of decline. In that sense, one has to be ready to implement a risk management policy to offset the unpredictable volatility of the market. Setting maximum loss levels and using stop-loss orders help limit losses, as not every trade will be a winner.
One of the keys to choosing a favorable entry level is to study volume and how it relates to price action. Volume is expressed at the bottom of a stock chart, usually in stems. When high volume matches a price jump, it signals strong interest rather than weak hands in the stock. Figuring out support levels also opens up opportunities to buy stocks at bargain prices.
Originally posted on WeeklyMoneyMultiplier.info