Useful Tips for Reading Stock Charts

Many people nowadays choose to invest their money in the stock market. If you want to create an investment portfolio, add to your savings, and protect your money from taxes then you should consider buying stocks in various companies. One of the reasons people choose this kind of investment is because it is an easy way to make money and it is something that you can do besides your day job. However, if you want to make a profit from selling and buying stocks, there are a few things that you should learn first, like understanding stock charts.

Useful Tips for Reading Stock Charts

What Are Stock Charts?

Before we talk about reading stock charts, you should first know what they are. It is a table or graph that contains the information of a company’s stock. This information includes changes in price, the trading price, dividends, the volume of the trading, the company’s past highs and lows, and all the financial information about the company that any investor may need. If you can understand the basics of the data presented to you in these graphs, you will be able to get information about the company’s past, present, and possible future performance.

Now that you understand what stock charts are, you should learn how to read them.

Moving Average

There are lines on the stock’s graph that are called the moving average lines. These lines track the movement of the share price over a duration of time. These lines are essential as they help you to understand if major investors are buying or selling a stock. What contributes to a stock rise and fall are institutional investors who have this kind of power. These investors also use the moving average lines to give them an indication of when to intervene to protect their investments. So, keep your eyes on these lines to watch your stocks behavior so you will know what is the best time to buy, sell, or simply sit tight.

Volume and Price

A stock chart is usually split into two parts: the volume and the price. You should look at both the price and the volume together to be able to understand what is happening with a stock. If you focus on the price and ignore the volume, you won’t be aware of the buying and selling activities. For instance, If you are investing in a stock and it falls about 2 or 3%, this will definitely make you worry. However, if you check the volume and see that it is way below average then this means that major investors aren’t selling, so you should do the same. On the other hand, if you notice that stocks gain momentum, but the volume of trade is oddly low then this means that the gain is head fake. This is because if major investors are buying shares, you will notice a rise in the volume. Watching trading volume will help you anticipate the future of your stock’s price and will give you an idea if there are major selling or buying activities. Investors decide on whether to buy or sell based on this information.

The RS Line

The relative strength or the RS line will make it easy for you to know if your stock is leading or struggling in the market. This line compares the price and performance of the stock with that of the S&P 500. So, if your stock is performing really well, you will notice the RS line rising significantly, but if it is trending down, this means that the stock is slowing down. When your stock is leading in the market, you will notice a huge rise in the RS line.

Which Chart Should You Read?

Now that you understand how to read a stock chart, you should know which type of chart you should read. There are two types of charts; daily and weekly charts, and you should read both of them. The daily chart allows you to have a look at the price and volume at very specific and important timings which determine the kind of action you should take. The weekly chart enables you to have a long-term look at the stock and its movements and learn about the shifts in the daily price so you will sit tight instead of being influenced by daily changes.

Stock Market Candles

Investing in stock has gained huge popularity in the last few years as many people are doing it to increase their income. However, if you don’t understand what you are doing, you will end up losing more than you make. This is why you should understand how to read a stock chart so you won’t make an uninformed decision that may even bankrupt you or your business.

Follow AsumeTech on

More From Category

More Stories Today

Leave a Reply