Reading the stock market charts is one of the important aspects to master stock market investing. The stock market chart may not play an import role in the long term investment as long term investment completely relies on the fundamental analysis. Fundamental analysis has very less importance to the chart and more importance to the company financial reports and companies performance details.
But when it comes to short term investing, Understanding and mastering stock charts is very important. Most important in technical analysis, charts plan an important role.
In this article we will discuss some of the important aspects to notice while reading stock market charts.
While observing stock markets charts, the main motive of any investor is to identify buy and sell signals for particular instruments. The following are important aspects of observing charts
When observing charts, it is important to keep a look at the historical data. Historical data is most important to understand and predict the BUY and SELL signals. Historical chart data will provide a basis on how the price performed in different patterns. And these patterns will reappear most of the times.
The price of an instrument always moves in a pattern formation. Even in a zig-zag market if you have enough experience you can observe particular patterns and these patters are most important to identify the signals for entry and exit price
Historical patters have to be observed and kept in Mind. Because in technical analysis, it is believed that the historic patterns will always repeat provided the same market conditions exit for the instrument.
Reading Chart Patterns
Selecting the type of chart: There are multiple numbers of different charts that are available. The first important thing is to select the perfect chart patter for your analysis. The most popular chart type is the Japanese candlestick chart. The Japanese candlestick is by default chart type that is provided by most of the brokers and only services. You can use other chart types such as line chart, Bar charts and others.
Time Period: Proper time period selection is an important one because it is the time period that determines the pattern that is formed. If you do some digging, you will observe that the patterns that are formed in one time period are different from another time period. The signal that you will get in one time period is different from the signals that you receive from another time period.
Volume Traded: Keep on eye on the volume that is traded while the price is moving. It is important that the volume has to be good enough to get liquidity. The higher the volume the more accurate the signals that we will receive. In fact, volume and price are the two most important factors in Technical Analysis.
Moving averages: Another important one to observe on the chart is Moving Averages. Moving averages is by far the most important and accurate representation of the price movement of a stock. You have select the time period of the moving average and can see how the price is moving and the direction of the moving average and accordingly predict the price movements of the stock.