Embarking on your investment journey and feeling overwhelmed by stock charts? Fear not. Grasping the basics of these financial graphs is simpler than you might think, and it's a crucial step towards making informed investment decisions. Let's demystify the art of reading stock charts together.
A stock chart is a graph that shows you the price of a stock over a specific period of time
More advanced stock charts will show additional data, and by understanding the basics you can pull out a lot of information about a stock’s historic, current, and expected performance
- Four key data points to understand
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Identify the Trendline
Use your trendline as a first-glance, high-level indicator of something to look into.
- News comes and goes, but when news coincides with a dramatic shift in the trendline, it’s something to pay attention to
- Most strong companies can rebound from hits like this, but not all can
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Look for lines of support and resistance
These are levels at which the stock stays within over a given period of time.
- Support is a price that a stock is unlikely to drop below while resistance is one that it’s unlikely to go above until a major change occurs such as a reduced profit margin.
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Public
Stock trading is a social event – literally
- Chat with other investors and get a sense of which investing strategy works best for you
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- Past performance doesn’t correlate to future indications on price
- There’s nothing to say it won’t double in price again
Know when dividends and stock splits occur
A dividend is when the company decides to give a portion of its earnings back to its shareholders.
- Stock splits are a strategic move done by the company’s board of directors to issue more shares of stock to the public.
Understand historic trading volumes
Don’t always assume there will be a correlation between stock price and trading volume, but it’s good to know what the volumes have been in the past and what they are currently before making a decision.
- With high volumes, there should be greater ease when buying or selling.
