Stock charts can appear to be a tad intimidating to those with little experience in investing. However, understanding them is crucial to understanding stocks. Therefore, in this article, we will explain the basics of charts and why they are important.
The purpose of stock charts
A stock chart is basically the price of a certain stock, or index of stocks, over time. It is telling you the history of the price movement. There is usually other useful data that one can look at to aid in analysing stocks.
Traders are the people with the most interest in stock charts. From them, they manage to get an understanding of a stock, and how people perceive it. By understanding the history of a stock’s price, traders can spot patterns and predict its future. They can then trade accordingly. However, it is a simplified visual representation of a stock’s price. It does not tell the whole story, which traders should keep in mind.
Important points of interest
There are a few important areas that traders keep an eye on to understand a chart. They can look at some important technical indicators, like moving averages and Bollinger bands.
Another important indicator is the support and resistance levels. They tell traders the current lower and upper bounds of a stock’s price. These are not set in stone, but rather represent the current consensus on a stock’s price. With these traders are able to locate where the supply and demand for a stock is.
The final thing to keep in mind is stock chart patterns. There are many such patterns, so it would be hard to list them now. Suffice it to say, these patterns indicate upcoming changes in a stock’s price. They tend to be very short term, so traders must keep an eye out for them. This can be vital in knowing the movement of a stock price in the near future.