This part of “How to Invest” elucidates the importance and techniques associated with Stock Charts.
For those of us who are new to the idea of Stock Charts, they can be defined as charts which have patterns on them that help to graphically represent price movement as seen in the Stock Market.
Stock Charts as a whole have several minute components, which could cloud your understanding of their pivotal functionalities.
Thus, let’s first look at what majorly constitutes a Stock Chart –
- Price Channels – When price is in an uptrend fail to reach the upper channel line on a stock chart, we can concluded that the uptrend is growing weak and might reverse.
Similarly, if prices abruptly break above the upper channel line on a stock chart, the uptrend is either seen to fade out while moving in the reverse direction or mark the beginning of a steep, new trend on the market.
- Volume Bars – Volume must expand as the price go higher and contract as the prices pull back. This is graphically represented when this pattern continues and the emergent volume confirms the uptrend.
Similarly in case of a downtrend, volume is seen to expand as prices fall and contract during rallies.’
- Moving Average Lines – Moving Average identifies the trend directions determines support and resistance levels.A rising Moving Average indicates that the stock is in an uptrend, while a declining Moving Average indicates that it is in a downtrend.
- Relative Strength Line (RSL) – This line compares the price movement of that particular stock to the price movement of the overall market. If the RSL trends up, we can conclude that the stock is outperforming the overall market. Similarly, if the RSL trends down, we can conclude that the stock is lagging the overall market.
A popular example of elucidating how importance chart analysis is in Stock Trading, is drawing its parallel to the idea of doctors reading X-Rays or medical test reports.
Without these reports, would the doctors be able to diagnose a health problem wisely?
Similarly, analyzing the market is never complete without understanding stock charts.
It is one of the most important skills you can ever learn!
Charts literally point to what the big investors in the stock market are upto!
Remember that these huge institutional investors and fund managers account for 80% of market activity – thus, it is important to keep a close watch on their moves.
SMS helps you find the big guns in the market through its inexhaustive charting techniques and helps you identify the best chart patterns that suit your trading style.
Our product is designed to not only guide you through the mechanics of Chart Reading but also equip you with the steps to do the same.
We at SMS understand the importance of Market Psychology when it comes to Stock Charts (and chart patterns) and we’ve incorporated this feature into our chart analysis techniques – thus, differentiating ourselves from others in the market.