Investment Tips

The beginning stock market speculator, to whom this article addressed, would be wise to spend time becoming familiar with stock charts and stock chart analysis. The stock chart is a valuable “tool” that can help guide the stock market speculator, especially in timing an entry into a stock position or an exit from an existing stock position.

The standard stock chart
A stock chart provides a pictorial representation of the trading activity that has taken place in a specific stock or group of stocks or, in some cases, the entire market, during any chosen period of time in the past up until the present day.

Price and volume changes
In the form of a graph, stock charts customarily show, for the selected time period, the price and volume changes of the stock under consideration, together with other supplementary relevant data, that enables the informed viewer to analyse and interpret the information portrayed — with the objective of using it to help predict the possible future movements that can occur as the stock continues to trade in the marketplace.

Stock prices fluctuate in response to supply and demand pressures and those in turn are affected by many other events and occurrences, often unforeseen, that can happen at any time and as news of them reaches the market place, sometimes with positive effect and sometimes not.

Sometimes stock prices follow a recognizable pattern
Price and volume changes are usually easy to discern on a stock chart and many times can be seen emerging in a recognizable pattern, a pattern that has occurred quite often at other times in the past and with other stocks and market activities.

And sometimes they don’t
The ability to recognize such patterns as they begin to occur is the basis of predicting the future path the stock will take. There is no certainty, no mathematical or scientific basis on which to depend, and many wrong decisions are made because the anticipated pattern does not materialize.

However, there are many chart indicators that have been shown to be fairly reliable and traders definitely heed their warnings. Common among those graphic indicators are that show price areas of resistance or support and where many traders will await a breakout from the confinements of those before making a commitment to enter or exit a position — making that a somewhat fulfilling prophesy — but if it works it works. Any one such indicator may not be sufficient to warrant a commitment but other factors that are usually shown on stock graphs can further influence decisions. Those include such things as a changes in trading volume, high or low volume, overbought or oversold conditions, those, together an understand of how external factors can influence stock price fluctuations, all can come into play when assessing the merits of staying in stock position or making a new stock trade.

For more on charts, check out: About Stock Charts and for more on a wider range of introductory trading activities please see: Stock Market Basics Guide.

In conclusion
Stock charts can help decision making and every trader welcomes a positive contribution to guide their decisions, give them an “edge” if possible and help them avoid mistakes that diminish their trading capital.

Experience teaches us that losses are inevitable in stock speculation. Many traders establish a series of basic guidelines to follow that are known to help manage risk to avoid large losses and to capture maximum gains when they exist. The signals on a stock chart that can be identified as warning signs can help alert the trader to the possibility, or even likelihood, that a guideline may be closer to being breached.

The stock chart is a valuable reference for may traders and some will not trade without access to stock charts.

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