What Is A Stock Chart?
A stock chart is a time-series price chart of a specific stock of a firm or index. The period (intra-day, daily, weekly, monthly, or annual) is represented on the X-axis, while the stock price is represented on the Y-axis. It also shows additional information that you will want to understand how a particular stock is doing in the stock market.
- Reading Price and Volume in the Right Context: You must interpret price variation in the context of volume change. Understanding a stock chart requires both of them. Before acting on a significant price shift, you must examine the volume. The price fluctuation may be due to an aberration or a one-time cause rather than active buying and selling. However, if the price shift is accompanied by a considerable rise or reduction in volume, it provides a more accurate picture of the actual purchasing or selling of shares by major investors. For example, assume the price of a stock has decreased or increased by 3% from the previous day. This knowledge alone may make you nervous. However, if trade activity has been below normal, you know it is a one-time occurrence and that the major investors are still waiting.
- Analysing The Trend Line: Those learning to interpret stock market charts may be perplexed by the blue line. When you see unique long-term patterns in the price movements of a company's stock, you need to do more research to identify whether or not there were certain events or news triggers that might explain the shift. Among other important causes, the changes might be company-centric, economy-centric, related to global macroeconomic reasons, or generally representative of a bearish or bullish market. This will allow you to make an informed choice on whether to purchase or sell stock. You may also choose technical indicators, such as moving average lines, to learn how to interpret technical charts. Moving average lines, such as a 50-Day or 100-Day moving average, show how closing prices averaged over time.
- Understanding The Levels Of Support And Resistance For Stock Prices: Stock charts are an excellent visual tool for determining support and resistance levels for stock prices. In general, you will see that even if stock prices have gone up and down, they may follow a price band or find support. On the upper end, you will see that stock prices do not break through a specific price level for some time until a critical event trigger drives stock prices through those resistance levels. At the low end, stock prices find support at some point. Stock prices may strike support levels many times before going below them owing to a significant event or reason.
Wrapping Up
In a nutshell, a stock chart is a visual representation of the demand and supply of stock in the market as reflected by price movement over time. When you've mastered the skill of reading a stock chart, you may experiment with other technical indicators to detect trends and buying and selling patterns. This will assist you in making well-informed predictions regarding stock performance and selecting winning bets.
Related Articles: Follow these 5 Expert Advices to Get Started with Investing | 5 Rules Every New Investor Must Know Before Investing | 6 Stock Market Investing Disasters To Stay Away From | 10 common mistakes made by SIP investors | 4 Smart Must-Follow Investment Tips for Beginners in India