Mastering the art of reading stock charts is in my opinion essential to making money when buying and selling stocks. Let's take a look at one of the most important features of stock charts:
Identifying the Trend - Often times, at a very quick glance, one is able to identify whether a stock is trending up, down, or not at all. Just by looking at the movement of a stock price, one can easily see if there are higher highs and higher lows for an upward trending stock. And the converse would hold true for downward trending stocks.
Moving Averages - Another good way to discover which way a stock is trending is by using a 20, 50 and 200 day moving average. You do this by selecting the moving average option
when setting up your software. Again, you can easily see if the moving average lines are trending up or down and if there are any crossovers.
Moving Average Crossovers - A crossover occurs when one of the moving average lines crosses over the other. For example, about January of 2008, the DJIA 50 day moving average crossed downward over the 200 day moving average. For the next 10 weeks or so, the DJIA trended downward before it started to advance upward.
There can be many crossovers depending upon the time frame you are looking at as well as the number of days you select. A 200 day moving average will appear to be more stable whereas the 20 day moving average may jump up and down. It is easy to get "whip lashed" if you are a longer term investor but you are focused on shorter term moving averages.
So longer term investors don't want to be buying and selling every time the 20 day moving average crosses over the 50 day moving average.
However, many investors base their buy, sell and hold strategies on various crossovers - or the absence of any crossover. Often times several moving averages will "bounce off" or "touch" another moving average. But it's important that the moving average actually crosses over before it triggers a buy or sell action.
Timing Your Purchases and Sales - If you own shares in a stock that is trending down, this may be a very good time to sell them and move on. However, depending upon your time horizon, you may want to add to your holding as the stock price moves down. Of course, you are still hoping to buy a stock that is, or eventually will, move upward.
If you notice that a stock is trending up, this may be the perfect time to jump on board and buy some shares. The earlier you buy it in an upward trend, the more money you will make when you sell it.
It's usually not a good idea to do "bottom fishing" unless you have the capital and emotional stamina if you see the stock price move even lower. Many investors never buy into stock that is on its way down; if they really want it, they wait until there is a "definite" upward trend.
Identifying the Trend - Often times, at a very quick glance, one is able to identify whether a stock is trending up, down, or not at all. Just by looking at the movement of a stock price, one can easily see if there are higher highs and higher lows for an upward trending stock. And the converse would hold true for downward trending stocks.
Moving Averages - Another good way to discover which way a stock is trending is by using a 20, 50 and 200 day moving average. You do this by selecting the moving average option
when setting up your software. Again, you can easily see if the moving average lines are trending up or down and if there are any crossovers.
Moving Average Crossovers - A crossover occurs when one of the moving average lines crosses over the other. For example, about January of 2008, the DJIA 50 day moving average crossed downward over the 200 day moving average. For the next 10 weeks or so, the DJIA trended downward before it started to advance upward.
There can be many crossovers depending upon the time frame you are looking at as well as the number of days you select. A 200 day moving average will appear to be more stable whereas the 20 day moving average may jump up and down. It is easy to get "whip lashed" if you are a longer term investor but you are focused on shorter term moving averages.
So longer term investors don't want to be buying and selling every time the 20 day moving average crosses over the 50 day moving average.
However, many investors base their buy, sell and hold strategies on various crossovers - or the absence of any crossover. Often times several moving averages will "bounce off" or "touch" another moving average. But it's important that the moving average actually crosses over before it triggers a buy or sell action.
Timing Your Purchases and Sales - If you own shares in a stock that is trending down, this may be a very good time to sell them and move on. However, depending upon your time horizon, you may want to add to your holding as the stock price moves down. Of course, you are still hoping to buy a stock that is, or eventually will, move upward.
If you notice that a stock is trending up, this may be the perfect time to jump on board and buy some shares. The earlier you buy it in an upward trend, the more money you will make when you sell it.
It's usually not a good idea to do "bottom fishing" unless you have the capital and emotional stamina if you see the stock price move even lower. Many investors never buy into stock that is on its way down; if they really want it, they wait until there is a "definite" upward trend.
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