If you trade stocks, you must know how to chart them. Some people search through charts to find buy or sell signals. I find this wasteful of a stock traders time. You can and need to chart all types of stocks including penny stocks. Charting tells you where you are on a stocks price pattern this means it tells you when to buy or sell. There are plenty of great companies out there, you don’t want to get caught buying them at their 52 week high and having to wait around while you hope the price comes back to the price you paid.
What is a chart: Charts plot the price of a stock over time. The best charts are candlesticks, these charts plot open and closing price while depicting whether the stock closed higher or lower. A red candlestick shows that the price closed below were it closed the day prior and a white stick shows the price closed higher. Within a chart there are also many additional features that depict the overall trend of the stock.
Choosing a time frame: If your day trading, buying and selling intra day, a 3 year chart will not help you. For intra day trading you want to use 3,5 and 15 minute charts. Depending on your longterm investment strategy you can look at a 1 year, which I use most often to a 10 year chart. The yearly chart give me a look at how the stock is doing now in todays market. I’ll look longer for historical support and resistance points but will make my buys and sells based on what I see in front of me in the yearly.
Stock Patterns: There are many patterns out there, either bullish or bearish. Bullish means that a stock is looking strong and bearish means the stock is looking weak. Most of your patterns are based on the trends, which way the stock is moving currently. There are different patterns that represent reversals, bottoms and tops. Some are more worthy than others.
Price Support: Support is a level of price that you do not expect the stock to fall below. You can think of a stocks price going up as a staircase, it will bounce against a certain price and trade sideways, then it breaks through and trades higher, the old price that the stock had trouble breaking above is now the support price.
Price Resistance: This is the price that the stock had previously stopped at. As a stock is moving up it will eventually pull back. That pullback point becomes resistance and the next time the stock approaches that point traders will be cautious. The more times a stock stops at a certain price the stronger the resistance becomes at that price.
Daily Moving Averages: There are many moving averages which is just the average price of a stock over a long period of time, on a yearly chart I like to use 50, 100 and 200 daily moving averages. They provide a long smoothed out curve of the average price. These lines will also become support and resistance points as a stock trades above or below its moving averages.
