We don’t do a great deal with charting. While there are some who search through charts for price patterns, I’ve found that will charting is useful for telling you in which you are, but not that useful for telling you where you are going. Nevertheless, every investor ought to know the basics about charting, if for no other reason than to understand what others are looking at and the predict their reactions. Here are some of the basic definitions that each stock investor should know:
Chart: The chart is a graph of price over a period of time. The most basic form of the chart is a line chart, which consists of a plot of the closing prices. A more useful chart is an OHLC chart, which plots the Open up, High, Low, and close for every day (or week or month). This chart is more useful since it shows where a stock traded throughout the period, rather than just a point in time, which tells more of the story. Candlestick graphs, which as colored or open up boxes depending on whether the stock transferred up or down during the day, are another refinement.
time frame: There are various time frames, which correspond to the amount of time represented by each point on the chart. For example , a chart that plotted a point each 15 minutes, and spanned a day, would be a very immediate chart. A chart that plotted one point per day and prolonged a couple of months would be a short-term chart.
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An intermediate-term chart would have points that represented a few days or so and include several months. Finally, a chart exactly where each point was a week or perhaps a month, and covered a few years to some decade, would be a long-term chart. Now i am typically concerned with the long-term tendencies, so I look at charts of several months to a few years or a decade in length.
Trend: A trend is the present movement of a stock. A stock will always be in an uptrend, downtrend, or sketching lines. We’ll cover these within a later post.
pattern (Bull or Bear): Certain patterns are commonly noticed that foreshadow specific price motions. One that would indicate the share is ready to go up would be a “bull pattern”; one that indicated a decline in price a “bear pattern”.
floor or support level: A price at which the particular stock traded at for a while just before moving higher. When the stock strikes that price, it tends to not really move below it.
ceiling: The alternative of a floor. Here the stock price is below the roof, and it may be difficult for the share to get above the ceiling.
shifting average: An average in which the closing price for a specified number of days are added together and averaged. Every day a new day is added as well as the earliest day in the average slipped. Moving averages tend to smooth out the price of a stock and provide a clearer picture of what is happening. Also, a stock over its average may be pricey, a single below it inexpensive. A 90-day moving average is a commonly used typical.