Our Executive Mentors provide investor education, product enhancements and software solutions on how to become a more successful trader. Understanding the Stock Market The purpose of this article is to provide you with invaluable insights into the Stock Market. Today's Topic: CHART ANALYSIS In all of our previous articles we have talked about setting up positions. We started with determining broad market strengths and weaknesses, applying that information to various sectors and industries and then analyzing stocks fundamentally. We then discussed the value of index tracking stocks, and using the VIX as an indicator when trying to determine market direction. All of this is great supporting information. It helps in strengthening your positions and determining the best route to take in the market. All of this will help you limit your risk, and hopefully increase your gains. Now I would like to begin explaining how technical analysis can help you determine actual entry and exit points in your particular stock. To be able to understand how this is accomplished we need to be familiar with how to read stock charts. If you are unfamiliar with these charts, initially they can appear to be confusing. Imagine for example an electrocardiogram. The print outs may appear like a lot of random squiggles to a layperson. With the right training and understanding however, all those little blips and lines can give medical professionals valuable information. Today, we're going to show you how to be a technical analysis professional. First, in the upper left hand corner of the chart you'll find the company name, ticker symbol, and the exchange it trades on. For example General Electric's chart would give you its ticker symbol (GE), and the fact that it trades on the New York Stock Exchange (NYSE). Just below that information you will see, "GE daily". This tells us that we are looking at a daily chart for the past year. Finally, below "GE daily," you should see "MA (22) 27.79. This tells us that the moving average is set at 22 days and that GE's current price is $27.79. On the upper right hand corner of the chart you will see the date followed by O (the Opening price of the stock); H (the Highest price at which the stock traded that day); L (the Lowest price at which the stock traded that day); and C (the Closing price that day; on an intraday chart this also can say L for the Last updated price to that point); V (the Volume or number of shares traded for the day); and Chg (the change in the price of the stock from the previous day's close). Our stock charts are divided into four different sections. The top section shows the price action for the stock with a moving average (the blue line). Moving in descending order, next are the volume bars. The Stochastic, and then the Moving Average Convergence Divergence Indicator (MACD) follow these. We will be discussing each of these in detail as we move on. First let's look at the price of the stock. Each trading day is illustrated on the chart by a vertical bar with two short horizontal lines. The vertical bar demonstrates the price movement of the stock on a given day. The lowest point on the vertical bar represents the lowest price that was paid for a share of stock on that day. The highest point on the vertical bar represents the highest price that was paid for a share of stock on that day. The short horizontal bar coming off the left hand side indicates the price of the stock when it opened. The short horizontal bar coming off of the right hand side demonstrates the price at which the stock closed for the day. You should also notice that the price bars are either colored black or red. When they are black it means that the stock's closing price was higher than the previous day's closing price. This indicates a gain for the day. When the price bar appears in red it means that the stock's closing price was lower than the previous day's closing price. This indicates a loss. This should give you the exposure needed to start analyzing your stock technically using the historical charts. In our next lesson we will discuss support and resistance. This will show us potential turn-around points for our stock and areas where we may want to get out and in. Wall Street Mentor Center |
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