There is certainly no dearth of websites that offer stock charts these days. However, unless you are an old hand at trend trading, understanding the information that you can decipher from a stock market chart may pose a problem for you.
You can go online today and gain access to many different stock market charts,
but would you actually know how to read one correctly? If you want to get into day trading or are interested in trend trading, you definitely need to learn how to read a stock market chart since the information it will give you is so essential to becoming a successful trader. If you are already a successful equity trader you may already know how to read these charts, but for everyone else let's take a look at what you can learn from chart reading.
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.
For trend trading, it is best to use a stock market chart that constantly streams changes in stock prices so you can keep up with changes during the day. If you plan to keep some of your stock for longer periods of time, then 20 and 50 day moving averages should also be included on your chart of choice.
As you get more into trading and become more seasoned you are likely to begin using more technical analysis, and that is when a stock market chart will prove to be extremely valuable. Besides reading the chart, many experienced traders use a variety of other technical analysis factors including supply and demand, research into a specific market, and background information on particular companies. This information allows them to predict some of the more dramatic up or down trends, since they aren't always registered on a chart.
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.
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.
After gaining this information from your stock market chart, it's time to determine the support level for stocks you are interested in trading. This is basically the lowest price that a stock has dropped to in a given period of time, without going below. For instance, if a stock has dropped to $30 a few times in the past year but has never gone below that level, then $30 would be the support level for that stock. You will need to analyze at least 3 months of price history for the stock for this analysis to be correct, but you can use up to a year of history.
You also need to determine the resistance level for your stock, which is the opposite of the support level. You are generally using your stock market chart here to determine the highest price your stock has hit in a given period of time without ever exceeding that amount. For example, a stock that has gone up to $80 a few times in the past six months but has never gone beyond that amount would have a resistance level of $80.
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.
