This article teaches you how to interpret a stock chart. It explores the stages, trends and patterns of a stock chart as well as the ways to analyse them. Finally, this article also proposes some trading tips.
How to read a stock chart
It is important that you know how to read stock chart in order to decide if trading on the stock is worthy of your money or not.
Stage of stock
Do you know which stage is the stock in? Stage 1 and 3 indicates a consolidation, stage 2 means an uptrend and stage 4, a downtrend.
When it comes to trends, is it at the beginning, middle or end?
How strong is it?
Is it considered an up or down trend?
Where do you see the trend lines?
Stock chart patterns Do you notice any gaps or wide range candles in the trend direction?
What about areas of resistance and support? The more you practice reading stock trading charts, the better you get at answering the questions. Most importantly, there will come a time when you can tell at a glance.
How to analyse a stock chart
What is the most important factor during a stock chart analysis? Pricing of course. Forget about technical indicators. They do not help you. Is this a smooth chart? You do not want to trade on a stock that can go out of trade. A smooth chart allows you to trade with confidence. Are there any significant gaps? As stocks usually move in the direction of gaps, these are considered favorable unless there are too many of them. More than three gaps can mean that the stock cannot move forward in future due to overbuying. Do you see people buying weaknesses and selling strength? The stock is better supported if there are people buying weaknesses. This gives you a measure of risk protection.
Some stock trading tips
When you are trading, you are dealing with probabilities, not certainties. So, don't think that you can necessarily predict what is in the future. Because of this, there is no such thing as the perfect stock. If someone else is doing the exact opposite of what you are doing, you can be sure that only one is right.