Trading the online stock and commodity markets successfully requires a sound knowledge of how to read stock charts. Unfortunately, many beginner traders do not know how to read stock charts. The purpose of this article is to help traders with such difficulty overcome their problem, master this skill and eventually help others understand how to read stock charts.
Delayed stock charts are available for free online and most brokers who offer online stock trading will provide you with free real-time stock charts. Stock charts are basically used for technical analysis which is the study of price action. All the tools of technical analysis are used on stock charts. So just like how you cannot survive as a human being without oxygen or water, you cannot succeed in commodity or online stock trading without knowing how to read stock charts.
How to Read a Stock Charts 101:
A typical stock chart will show the price action of the underlying financial asset in three ways: as a bar chart, a line chart or as a candlestick. Candlesticks are the most popular method because they easily display the high, low, open and close prices for the instrument at any given time. As a trader, knowing how to read a stock chart entails that you must be able to determine prices on sight from the bars, line, or candlesticks. See the diagrams below:
The next thing is to know how to apply technical indicators and interpret what they are saying on the stock chart to be able to make an informed trading decision. There are many technical indicators and trading systems typically a combination of one or more technical indicators, which helps the user to know how to read the stock charts with these indicators to predict future price action.
On a final note, you need to know how to read the stock charts to determine the time frame and projected price targets for the underlying investment. In simple terms, you need to be able to know when you are reading a 1hour chart, a daily chart or a 15 minute chart. You need to know what the price action depicted by the candlesticks means on each chart. For instance, a single candle on a daily chart represents the price action for a day, while a single candle on a 15 minute chart represents price activity for only 15 minutes. It makes a difference knowing which is which. If you do not know how to read a stock chart properly, you will have a problem making accurate trading forecasts and decisions.
Determining pivot points for a trading day involves knowing the high, low and closing prices for the previous day. A trader who knows how to read a stock chart can easily use a daily chart to make this determination for short term intraday price swings.
We have just gone through a very basic lesson on knowing how to read stock charts. For expert lessons and technical analysis training courses visit: How to read stock charts