One of the basic in learning how to invest is learning how to read stock charts. While at first it may seems overwhelming, it is important to take the time to learn how to effectively read a stock chart prior to beginning to trade. Learning how to read stock charts can take time and effort as there are so many points to learn.
However, if you can master stock charts, you are very likely to become a highly successful stock trader.
It is no secret that many traders lose money when trading stocks. As I have said on many occasions on this site, one of the main reasons for this is a lack of trading discipline, as the negative effects of emotional trading have been well documented. One of the key factors to successful trading is developing a trading plan and sticking to it.
By learning how to read stock charts, you can base your investment decisions on technical factors and indicators that are exponential more reliable than your emotions when it comes to stock trading. While the importance of learning to read stock charts can not be understated, keep in mind that a stock chart is not an infallible indicator of the direction of a stock’s price, and should be used in conjunction with other forms of stock research including fundamental analysis.
A significant reason people lose money in the stock market is not having a good understanding of how to trade stock charts. Here is a brief overview of stock charts, and how they can assist you in your trading strategy.
How To Read Stock Charts: Stock Chart Types
I think a good place to start is to take a look at the different stock chart types. The most commonly used chart types are line charts, bar charts and candlesticks charts. Most people are familiar with the commonly used line charts, although you may have come across candlestick charts and bar charts in your research.
Next let’s take a look at trading moving averages. There are two main types of trading moving averages, a simple moving average and an exponential moving average.
Did you know that by looking at stock chart volume you can find out how liquid a particular stock is? This is key for many investors who would like to shy away from stocks that trade on low volume and can be highly volatile. It is crucial to familiarize yourself with the effect volatility can have on your stock purchases.
Do you know your Doji from your Harami? Yes I am talking about candlestick patterns. There are many common patterns including morning stars, shooting stars, evening stars and many more. These patterns can help investors identify and capitalize on a stock’s trends, and therefore deserve consideration.
How To Read Stock Charts: Stock Chart Patterns
The next important thing for investors to learn is the different stock chart patterns that they may find when looking a stock charts. We look at the most reliable patterns including head and shoulders, wedges, flags and many more. Chart patterns have happened before many major stock market moves and made them possible to predict, including the stock market crash of 2008.
Stock charts are not hard and fast indicators of where a stock’s price will go, but can be useful tools in making an educated guess as to the direction the market is heading.