Stocks are a type of financial instrument that represents partial ownership in a company. The stocks that the investor owns, will entitle him to a portion of the profit earned by the company. The more profit that the company is earning, the more will be the demand for the stocks of that company. Most investors will look to invest in stocks in the medium to long-term and as a result, stock prices tend to be stable. However, stock prices do move sharply when speculators gets involved in the market with their speculative activities. When this occurs, you want to be able to get in on the action as well. So how do you know when is the right time to enter or exit the market? The answer lays in the price charts. As stock prices are generally stable during the short term, any trading activity that is out of the ordinary can easily be spotted by comparing the trading charts.show more
Most stock charts will contain all the information that you need to help you determine if anything out of the ordinary is happening in the market. Although stocks charts can come in different formats, they all contain the following information about the instrument that the chart is plotting:
The information on the price can be its highs and lows for the day or for the week. It will also contain its latest price. When plotted on the price chart, the price movement will resemble a smooth wavy line. The stock chart can also depict the volume of shares that have been traded. With these two key pieces of information, it is possible to make a determination about the future price movement within the near term.
As mentioned earlier, stock prices tend to be relatively stable as most stock investors invest in stocks for the long term. It is when speculators start to speculate on a stock’s price that we get to see rapid changes in the price movements. The first indication of such is when the price of the stock starts to rise or fall beyond its daily price fluctuation range. By plotting the daily highs and lows of an instrument’s price movements, we can see that the prices move within a range bound by its highs and lows. So when prices start to fall below the previous lows or rise above the previous highs and backed by increased trading volume, we will know that the speculators are beginning to speculate on a stock’s price. By being able to spot such changes in the price movements, a well informed trader will be able to make the correct trading decision. This is why it is crucial that any trader learn how to read and understand the stock charts before he actually begin trading live.