We all can agree that trying to read a stock chart for the first time in your life can be quite confusing and overwhelming. Stock picking is very hard, and understanding charts are the first step towards investment success. We have curated a simple method for you to pick individual stocks. If you are a new investor, we advise you to start by investing in mutual funds so that your portfolio is diverse and the risk to your capital is reduced. If you want to find viable investments, knowing how to read a chart is key. Here are some steps to help you read it.
Identify the trend line
If you see a chart closely, there is a blue line that goes either up or down. Even though this trend can seem like common sense, there are a few things to keep in mind. It is important to remember that stocks take huge dives and climbs. Do not react to huge gains or large drops in an emotional way. Instead, use them to see what is going on. For example, even though the trend was up for Apple from 2009 to 2012, it went down in 2013. After closer inspection, the reasons behind it were the change of CEO of the company. The new CEO made some strategic moves to help turn the company around. If you inspect these trends closely and research well, you will know what to do.
Find out lines of resistance and support
There are certain levels at which the stock stays in between over a period of time. This means that it is unlikely to drop below or go above those lines unless a major change is introduced. The reason for understanding this is to know when to sell or buy your stock. It is crucial to read the charts to draw your own lines of support and resistance, based on how long you plan on keeping the stock. If you plan on keeping it for long, you will most likely draw only a few lines.
Know when stock splits and dividends occur
When the board of directors gives a portion of its total earnings back to the shareholders, it’s called a dividend. This can be seen at the bottom of the chart. There are a lot of companies that do not put dividends but prefer to focus on growth. Instead, they reinvest their earnings instead of giving them back to shareholders.
A stock split is a strategic move performed by the company’s board of directors to issue more stock shares to the public. It doesn’t change the company’s value, but it definitely changes the price of a stock. This is usually done to attract smaller investors or make the stock price compared to other companies.
It is essential to understand how to read a stock chart to be better informed about your investing options in the future. It is important to remember that past performance does not correlate with future indications on the price.