Charting Stocks – ways to Read Stock Charts For Options Trading.
The crazy thing is that out of all of the courses I paid for, not one of them showed me easy to read stock charts secret. Now that I’ve learned it’s time to give back and share what I know.
Since stock options are derived or come from stocks, it’s necessary to know how the price of the stock is behaving as this will greatly affect your option’s worth.
Charting stocks is not different than doing science experiments in class. You collect information ( stock costs ) and then that information is plotted so you can see the overall big image of what is going on.
Based mostly on the way in which the stock chart looks, you will invent a trading plan and trade in the direction of the trend.
Charting stocks can shield you from big losses and help you further your option trading gains. To absolutely milk what the chart is enlightening you, you’ve got to first understand the fundamentals of reading stock charts.
What is a Stock Chart?
A stock chart is just a graphical representation of the stocks price over a set period of time. The chart shows you at a peek how a stock has performed.
There are 3 3 basic types of stock charts ( bar, line, and candlestick ) and depending on your trading style, each chart will serve its own unique purpose. Without regard for what type of stock chart you use, all three do nothing more than uncloak the buying and selling patterns of the stockholders.
This is something that is hard to discern by reading stock quotes in the daily paper. That is why charting stocks has gotten so invaluable.
four Key Areas of each Stock Chart:
There are 4 key areas you want to become acquainted with when charting stocks:
Identification Section.
Time frame.
Volume Bars.
“X” and “Y” axis.
Identification Section:
Company Name: Potash corporation.
S one thousand tock Exchange Where Traded : Big Apple Stock Exchange “NYSE”
Trading Symbol: POT.
Current Date: ( top left corner ).
Days Price Change : opening price, days price high, days price low, and closing price.
Volume: how many shares of the stock were traded for the particular period of time.
Change: this is the day’s greenback change compared to yesterday’s final price. The dollar change and the p.c change will be listed.
Time-frame: the chart will display what time-frame you are viewing ( one year, 6 months, and so on. ). It is strongly recommended to switch the timeframe to one that fits your trading style. Having a look at a 3-6 month chart is required if you have got a short term investing plan, and 1-5 years if you have got a long-term investing plan.
Volume Bars: volume is often called the center of the stock exchange. It is a key indicator of demand and supply. By taking a look at the volume bars you can get a warm feel for the strength behind the share price movement. A stock moving higher on heavy volume is much more sure to continue climbing than one that’s moving higher on light volume.
“X” and “Y” axis: the “X” axis is the bottom portion of the graph, running horizontally, and it flows left to right. It’s the portion of the graph that has the time frame that you are looking at. The left side is the past and the right is the present. We use the past as a reference, but we trade from the right side of the chart. We trade what we see now.
The “Y” axis is the right side of the chart, running vertically, and flows top to bottom. This portion of the graph has the price action.
essentially for the noob, charting stocks comes down to three things:
*You’re going to have a look at the association between a stock’s price and volume activity ( as shown by the price and volume bars ).
*You’re going to have a look at the chart and identify if the stock’s price has been trending down or up. If it is’s been trending up, I buy call options. If it’s's been trending down, I buy put options.
*You’re going to determine where the stock’s support and resistance levels are. Support and resistance are areas where the stock has had trouble proceeding past, or an area where the stock halts and changes direction.
A stock chart can provide you with a cornucopia of information as long as you know and understand what you’re having a look at. Basic charting knowledge mixed with other stock indicators can massively improve your trading talents.
Charting stocks has helped me find many worthwhile option trading opportunities to learn which are top stocks to buy now, and it is a ability that gets less difficult over time .