Components of a Stock Chart
Successful day trading involves learning about the various aspects of technical analysis, especially stock charts. Your initial glance at a stock chart may prove daunting, but it doesn’t take long to learn all the components – and how to use them when trading. There’s no more crucial visual aid in stock trading than a stock chart. All stock chart components include labeling, so it’s just a matter of learning what these labels mean and what they indicate to become a stock chart master.
Stock Chart Basics
Think of stock charts as akin to maps. They tell you where the stock has been, where it is now, and can identify its general future direction, if history is any indication. If you’re new to reading stock charts, here is basic information found in stock charts:
- Symbol – the chart shows the trading symbol for the particular stock, i.e. FB for Facebook
- Support and resistance levels – the prices at which the security stays during a specific time period. When the security “breaks through” these levels, the lines change.
- Trading volume – these volume trends can change rapidly – up or down – depending on news affecting the security
- Trend lines – these straightforward lines show a security’s general direction. Straightforward is not synonymous with simple, as prices don’t tend to move straight up or down. Instead, traders look for a security’s “highest highs” and “lowest lows” when making trading decisions.
Charts use various methods to indicate price information. While the simple line format is the most obviously understood, most traders prefer the candlestick method. This involves one “candlestick” formation for each trading day, so a 10-day candlestick chart shows 10 days worth of price data. All the crucial price information for a security is there, including:
Candlestick charts make analysis of trading periods over a specific time period easy. They’ve been in use for centuries, originally developed by Japanese futures traders. However, candlestick charts make the most sense for shorter-term trading, for day or weeks rather than months.
Point and figure charts consist of columns of Xs and Os. The former indicates rising prices, while the latter shows falling prices. Once familiar with this type of chart, the trader can instantly see a security’s support and resistance levels. When the price moves beyond these support and resistance levels, it’s time to trade.
Once you become accustomed to reading charts and price data, common price patterns – and rare ones – immediately stand out. You then have the opportunity to make an informed trade, maximizing your potential for success.
The SureTrader Advantage
SureTrader offers clients top charting and technical analysis. As you educate yourself as a day trader, you will find the type of charting that works best for your investing strategy. Technical analysis is the use of a variety of tools, including charts, to predict the future movements of individual securities. The more information there is at your disposal, the better your trading choices. Information is power, and SureTrader delivers with a state-of-the-art platform and software. That’s just part of the SureTrader advantage.