How to Read Stock Charts: Stock Chart Essentials that Spell Success

Posted on July 10, 2010, 12:44 pm, by admin, under FOREX.

How to Read Stock Charts: Stock Chart Essentials that Spell Success

The stock market can either be your ticket to instant wealth or it can also be the reason for your financial setback. A single misstep can mean disaster and you can lose your proverbial shirt overnight. Your fate will largely be defined by how you will approach the stock market and the information that you will gather while you are considering your choices and decisions. These are the main reasons why you have to learn how to read stock charts. Once you are able to acquire the competency in reading stock charts, you will be able to know the best time to buy and sell stocks.

You have to remember that the stock chart is a critical component of your trading activity and it is essential that you know how to use it as an effective tool in determining your best options. Once you have learned how to read stock charts, the next thing that you must do is to learn how to buy stocks. Here are the critical things that you must take into account to ensure that you are able to maximize the use of stock charts:

Use stock charts to validate the findings of your research

Don’t believe traders who claim that they can predict what is going to happen in the stock market by merely looking at stock charts. The truth is that in most instances, they miss target by almost a “mile.” You have to understand that stock prices may respond in different ways to market forces, notwithstanding the current conditions that may be presented in stock charts.

Look at trends and not at chart patterns

Don’t try to find patterns in stock charts as there are none. If there is one thing that exists in them it is the trend – the lower than usual highs and the higher than usual lows. If you can be able to find one or two distinct trends weekly that you can use to generate profit, then you are on the right track.

Setting the support and resistance levels

Stock charts will have an imaginary line which corresponds to either the support level or the resistance level. This line serves as the demarcation where the price will not fall and rise any further. This line is not necessarily a horizontal line as it can slope upwards or downwards depending on the movement of stock prices. If the stock price is moving faster than normal towards this imaginary line then there is a strong possibility that it will be breached. Once the stock price goes beyond the imaginary line, this will mean that a new support or resistance level is established.

Acknowledge the limitation of stock charts

Once you are able to learn how to read charts, it is essential that you also learn to accept what these charts can offer. In short these stock charts must not and never be considered as your veritable “crystal ball.” Stock charts are just tools that will help you make stock trading decisions and choices so that you avoid committing the same mistakes made by traders who don’t know how to read charts.

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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