Your stock trading can benefit from using price charts. Technical analysis is a general term for the analysis of a stock’s price through the use of its chart. There are as many approaches to technical analysis as there are traders in the market. The first thing one has to learn is how to read a stock chart before one can begin using tools that technicians use like various stock trading software programs.
A stock chart can come in a number of styles, be it a bar or candlestick chart. Each figure represents the price variation of a stock during a particular time period. If the time period of the chart is 1 day, then each bar or candle will represent one day’s worth of the stock trading. On each bar will be noted the Opening, High, Low and Closing price of the stock. Those numbers are extremely important as they are used in nearly every technical indicator to one degree or another. Below each bar is a histogram of the volume, which is the number of shares traded during that same time period.
Some who are stock trading use indicators like particular moving averages (the average of the last X bars of the chart, ie. A 50 day moving average is the average of the last 50 trading days) and the current price’s relation to them to determine if the stock is cheap or expensive, or in a bearish or bullish posture. The common moving averages used are the 20, 50, 200. Some traders also like weighted moving averages as compared to simple moving averages. In that case the 55, 144 and 288 period moving averages are levels that many traders key off of as well. Moving average crosses, the 50 crossing the 200 for example, are considered signs of a fundamental shift in market sentiment, especially on a daily time frame.
The Bollinger Band is another common technical indicator that is overlaid on a stock chart to determine if a stock is consolidating or due for a correction after a trending move has been in process. The Bollinger Bands are generally drawn as +/- 2 standard deviations of the 20 or 21 period moving average.
Relative Strength Index (Wilder’s RSI) and MACD (Moving Avg. Convergence/Divergence) are also very common indicators. RSI is a leading indicator, generally, alerting the trader to an extreme build-up of sentiment on one side of the market or another, while MACD is more of a momentum indicator, telling the trader what the general direction of the market is.
Stock trading software automates a lot of this charting for you, allowing you to set up the studies you want to see and changing the scale of the stock chart to suit you allowing you to zoom in on critical moments in the life of a stock and guide your decision to buy or sell.Previous Post » What Is Options Trading?