By Robert Miner
There is certainly no dearth of websites that offer stock charts these days. However, unless you are an old hand at equity trading, understanding the information that you can decipher from a stock market chart may pose a problem for you. If you intend to indulge in trend trading or are into day trading, these charts may prove to be a very potent tool in your investment arsenal. So, here is a look at the intricacies of a stock market chart and the information that it can provide.
There are three basic types of stock charts, the line, candle and bar; of the three, the line chart stock market chart is the easiest to read while the candle chart is slightly complex albeit provides more accurate information.
Ideally, if trend trading is your goal, you should opt for a streaming stock market chart which includes real time changes in stock prices. On the other hand, if you intend to hold your investment for a few days, you will need 20 and 50 day moving average on the charts.
As far as trend trading goes, start by observing the trend direction of the price movement which is the single most important piece of information that you can get from a stock market chart.
Most seasoned traders use a combination of stock charts, market research, company fundamentals and the supply and demand factor of the market to predict the price movement. If you tend to use technical analysis often, these charts will be invaluable to you. It seldom happens that a distinct up or low trend is seen on a stock market chart usually the prices do not seem to trend, a situation known as consolidation.
With the 20 days and 50 day moving average, you should be able to determine the direction of the price trend. If the 20 day moving average is above the 50 day moving average line, the price is in an uptrend while if you see the opposite it is in a downtrend.
Once you know about the price trend from the stock market chart, the next step is to find out about the support level. For this you will need the price history for the last 3 to 12 months. You will have to determine the level at which the price has held consistently. For instance, if the price of a particular stock plunged to $30 several times but did not go through this level, you can be sure that $30 is the historic support level for this stock.
Also, find out the resistance level on the stock market chart, this level is the opposite of support. For example, if the price of a stock soared to $75 several times in the last 3 to12 months but each time it came down from that level never exceeding it, you can be sure that $75 is your solid resistance level for the stock.
In trend trading the support and resistance levels are very important because usually when the price goes through an important support or resistance level it will probably continue in that direction for some time. This simply means that if the price of a stock falls below a support level, its time to sell and if you see it crossing through a resistance level, its a good time to buy and then sell as the price continues to move up.
Learn more about Stock Market Basics.
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