How To Read A Stock Market Graph ?
If you are into stock trading, then you know that you can easily get stock market graphs anywhere on the Internet. However, how to read a stock market graph? What information should you be looking for in order to make a sound and educated investing decision. |
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If you want to know how to read a stock market graph, it is important that you keep things simple. You should ignore all the indicators that come with the graph. Instead you should only focus on some key points.
When reading a stock market graph, always look for the trend direction. Often this is ignored by many stock market investors. Remember, price trend can go up, down or stay on a plateau. Prices that do not trend are known as consolidation.
In order to find the trend direction, you should be checking 20 days moving average and 50 days moving average. Usually a graph will allow the user to set the duration for the moving average. If the 20 day moving average is more than the 50 day moving average, it means that the price trend is going upwards. If it is the opposite, then the price of a stock is moving downwards.
Then check the graph to see where the price support is mentioned. Look at the price history for a stock. 3 to 12 months should be enough. This will allow you to see where the price of a stock has held up on a consistent basis. For instance, if a particular stock dropped to $20 many times in the last 6 months and then rose again, you know that the historic price support for that stock is $20.
Now check the graph for price resistance. This is the opposite of price support. Price resistance is the price above which a stock did not rise on many occasions in the past. For example, if a stock rose to $50 two or three time in the last 4 months and then fell back, then the price resistance for that stock is $50.
Based on the stock market graph, you should only buy stocks that show an upward trend. Stocks that show a downward trend should be sold. You should use the 20-day and 50-day moving average to help you figure out the trend of different stocks.
The price support and price resistance can give you more information on when to sell or buy stock. If the price of stock falls below the price support, then you should sell it. If the stock is above the price support, then you should buy it. You should also buy a stock when the price of the stock moves above the price resistance area.
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