Stock Market Charts

Stock charts are a commonly used visual aid used by traders in the stock market.

Stock charts, in the form of relatively easy to interpret graphs, show the range of fluctuating prices of a stock or a stock index that have occurred over a selected period of time in the past until the current date, useful information for the stock market trader.

The value of the stock chart to the trader is based on the assumption that the patterns of trading activity of the past are likely to be repeated frequently in the future and if those patterns can be recognized as they begin to develop they can provide actionable evidence for stock trading decision making. The expectation being that whatever outcome occurred previously is likely to occur again, a matter of history repeating itself.

At a glance, the trend of the stock or the market in general can be seen, important to know when following the standard advice of “Do not trade against the trend”. Also, other important relationships such as those between changing trading volumes and changing stock prices are also instantly recognizable.

More detailed examination and interpretation of charts, commonly known as Technical Analysis, has become a specialized skill and takes into account many more indicators and variables than those mentioned here. Through the analysis of the stocks portrayed, the trader looks for chart patterns that can signal the point when the time is right to enter or exit a trade. The stock chart can often do that quite well and often with ample prior build-up time to plan carefully and be ready to make the move.

A vocabulary of names of the various formations has developed among analysts and traders and an unofficial set of ground rules establishes the attributes attached to them. The names of some of the many formations, some of which are very similar, include, Flags and Pennants, Ascending and Descending Triangle, Saucers, Measured Moves, Breakaway Gaps, Wedges, Head and Shoulders, and there are many others. There are also indicators that use combinations of factors related to price and volume and convergence or divergence and crossovers of lines of moving averages. For a sample chart and a further introduction check out this link: Looking at the Charts.

For those wishing to learn how to trade stocks or to study stock charts in greater depth, reference books on technical analysis are available from the better bookstores and many local public libraries have them for general circulation. There are many internet resources that deal in depth with the subject and anyone prepared to spend the time can soon become familiar with the half dozen or so that consistently lead to profitable decision making.

After the easy to recognize trend lines and the support and resistance levels, those I recommend to watch for are: saucer formations, breakaway and exhaustion gaps, triangles and pennants, and measured moves. If those can be recognized and traded, the odds of making profitable trades are increased.

But do not forget to ALWAYS USE STOPS to manage risk.

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