Stock charts have been around for centuries. The earliest existence can be traced back to the Japanese, who used candlesticks to trade rice future contracts. Charles Dow pioneered Western technical analysis, and his Dow Theory is timeless in his explanation of how the stock market ebbs and flows.
As recently as 15 years ago, it would cost an arm and a leg to get a stock chart worth anything. You would have to get a separate data feed and that itself could cost a small fortune. Data was provided through a satellite dish, and if it wasn’t pointing at the proper
angle, you were out of luck, or were getting the ladder out to do some fine tuning.
Fast forward to the modern day and pulling up a stock chart is as easy as a click of your
mouse. While they may be simple to find, how exactly do you read a stock chart?
A stock chart will graph two things: price and time. The vertical axis shows the price
of the stock or other instrument you are charting, and the horizontal axis plots the time.
Technical analysts (stock chart readers) are looking for how price moved over certain
periods of time. They are searching for clues that can help them determine where the
next move is going to be. Pieces of the move, known as swings or waves, can help point
to which direction has the dominant force behind it. By sticking with stock market trends
that are dominant, you are putting yourself in the right place- with the wind at your back.
By going against the stock market trends, you are leaving yourself open to being run over
as the trend moves on through, and you get crushed standing in front of a tractor trailer.
A stock chart is great to view crowd participation in a move. You can do this by
applying a volume histogram to the bottom of your stock chart. This shows how many
shares have turned over in a given session. If volume is high, there are a lot of people
involved in the stock. If it’s low, it’s lost the interest of the public. Stock market trends
that lose the interest of the public tend to be short lived and often fade, whole those that
have high volume backing up their moves tend to extend longer than people thing.
Finally, you can plot a stock char ton any time frame, form monthly to help time your
mutual fund purchases down to less than even 1 minute for your intra-day scalping. The
principles remain the same, the data just moves much faster the quicker the time frame.
Depending on your tolerance and personality, there is a stock chart for every part of your
stock market trading.
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