Stock Market Chart Tips: Understanding Trend Trading

You can go online today and gain access to many different stock market charts, but would you actually know how to read one correctly? If you want to get into day trading or are interested in trend trading, you definitely need to learn how to read a stock market chart since the information it will give you is so essential to becoming a successful trader. If you are already a successful equity trader you may already know how to read these charts, but for everyone else let’s take a look at what you can learn from chart reading.

There are different types of charts, including the line chart, bar chart, and the candle chart. The line chart is the simplest to make sense of, but you are likely to get more accurate information by reading the slightly more complex candle chart.

Ideally, if trend trading is your goal, you should opt for a streaming stock market chart which includes real time changes in stock prices. On the other hand, if you intend to hold your investment for a few days, you will need 20 and 50 day moving average on the charts.

When using a stock market chart for trend trading, the most important information to pay attention to is the direction in which prices seem to be currently moving.

Yet, you will likely see the value in doing other types of research as you become more experienced with trading. A stock market chart will not always reflect some of the biggest up or down swings in the market, which is why experienced traders do a lot of other information collecting on supply and demand as well as information on specific companies. Research into specific markets is often useful as well.

However, a 20 and 50 day moving average will show you the general trends in pricing. For instance, if you notice that the 20 day average is higher than the 50 day average, then you will clearly see that prices are moving in an upward trend. If circumstances are switched, then you would note a downward trend.

After gaining this information from your stock market chart, it’s time to determine the support level for stocks you are interested in trading. This is basically the lowest price that a stock has dropped to in a given period of time, without going below. For instance, if a stock has dropped to a few times in the past year but has never gone below that level, then would be the support level for that stock. You will need to analyze at least 3 months of price history for the stock for this analysis to be correct, but you can use up to a year of history.

Next, use your stock market chart to determine the resistance level for each stock. A resistance level is exactly the opposite of the support level. It is the highest amount the stock has hit in a given period of time, never going above that amount. So, if your stock has hit a few times in that given period of history but has never exceeded that amount, would be the resistance level.

For trend trading, these values are crucial to timing your trades. In general, once you see a stock going beyond its historically based support or resistance level, you can bet on it continuing in that direction for awhile longer. This means that you should sell stocks that are going below a support level and buy into stocks rising above their resistance level. This is how you will determine when to sell and when to buy in order to bring in real profits over time.

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