How to Invest Using Stock Charts
Using stock charts could greatly increase your investment gains over the long term. Many novice investors do not even look at them no less learn how to invest using stock charts. Short and long term stock movements are greatly affected by stock charts and technical analysis. The pure psychology of trading stocks based on stock charts is quite mind boggling. Seeing a stock bounce off the 50 day moving average for no other reason than it is a line is something amazing to behold; especially if you are long that stock. So how do you invest using stock charts?
There are many chart programs available, but the easiest and best stock chart website on the internet is just that – stockcharts.com. To make it even better, its FREE! You can find all the information you need and then some on this site. You even have the ability to change the background of the charts you create. For even more information, you can become a member to the site, but that will not be needed for a new investor using stock charts.
Buying and selling based on stock charts is known as technical analysis. The more experienced you become at this, the better you will be able to predict future stock directions. The most important aspect of technical analysis is the moving average. The most common moving averages are the 50 day moving average and the 200 day moving average. If a stock is trading above its 200 moving average and the 200-dma is uptrending, the stock is thought to be in a bull market. The 50-dma is a shorter term predictor, but stocks can often get strong bounces off this line.
Notice on the chart above there is a red line and a blue line that represent the moving averages. The blue line represents the 50-dma while the red line represents the 200-dma. Also notice the Family Dollar Stores stock hold both the 200-dma and 50-dma several times in a period of six months.
The fact that FDO has found support at the 200-dma proves that this stock is in a current bull market. What makes this chart even more promising is the fact that the stock is currently holding support above the 50-dma even during a steep decline in the overall stock market.
What is important to note is that one should not invest solely in stock charts alone. Do some research and invest in companies you feel will do well in the current economy environment. If you cannot think of any, we offer many stock picks on this website to help you out. After deciding on a stock, you can easily predict the short and intermediate term movements based on a stock chart.
If you see an uptrending 200-dma that has held support several times, that stock is likely to head higher. If you see a stock that is WELL above both the 50 and 200-dma, you might want to wait for the stock to come back to reality and test those important support levels. Many investors get burned by buying stocks that are 25% above both the 50 and 200-dma. That means that if the stock starts to retract its gains, you are going to lose a large chunk of your investment before it even finds a support level.
We will continue to produce more assistance on how to invest using stock charts in the future. Please feel free to ask any questions you many have on technical analysis or stock charts as a whole.