How to Read and Predict Stock Charts

How to Read and Predict Stock Charts

Learning how to read stocks charts can seem like a daunting task. There are many different ways to view how a chart will look, in addition to the many patterns you have to analyze to make the best decisions for your best outcomes when investing your money.

All you see is a chaotic blur of lines, colors, numbers, and acronyms.

When you begin to invest, you don’t need to be a pro at reading stock charts, but if you can understand the basics, you can be set up to make investments with confidence.

Stock Chart Terms and Components

The easiest, most basic way to review a stock chart is to go through a simple google search for a specific company, and you’ll see a basic chart that is perfect for beginners to get an idea of what they are looking at.
You will need to know some basic terms when analyzing stock charts.

Open, high, low, and previous close – Open means the price the stock was at when the market opened for trading that day. High and low are the price points for a stock during trading hours. The previous close is what the price of a stock was on the previous trading day.

Market Cap – Market cap is market capitalization when is a measure of the size of a company based on the number of shares on the stock market multiplied by the stock’s total price.

PE Ratio – This is the price to earnings ratio which investors use to determine if a stock is under, over, or fairly valued.

Dividend Yield – A dividend is a cash payment companies pay their shareholders to hold their stock. The dividend yield shows how much a shareholder might receive annually based on the current stock price.

These are the most basic terms you need to understand to begin reading charts.

How to Predict Prices using Stock Charts

The most fundamental knowledge you will need to predict how the market will swing is understanding chart patterns.

Chart patterns are patterns of behavior that are indicated on a price chart that traders use to decide the next direction for that stock based on trends.

There are three broad categories to know regarding chart patterns:

Reversal Patterns –  A reversal pattern shows a trader that trade is about to reverse and the previous trend is about to end, and a new trend is setting up in the opposite direction.

Consolidation Patterns – Consolidation patterns show traders that the previous trend has come to a resting point. The trend will continue or reverse, and a trader will wait for the stock to break out.

Continuation Patterns – A continuation pattern is where a trend is going to continue, and most traders prefer this type of pattern to capitalize on “buying the dip.”

If you have a basic understanding of the three main patterns, you will have a good base knowledge to trade for profits with more skill. You can build on your knowledge as you gain experience.

Did you know?

We make courses that can help you learn how to trade and develop trading skills whether you are just starting out as a beginner or have been trading a long time.

Check out our Course Academy to see how you can learn how to develop into the trader you’ve always wanted to be.

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