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Three key concepts to reading stock charts-

Are you new to investing or just learning how to read stock charts?

Here are three key concepts that you should familiarise yourself with in order to spot profitable patterns.

Trend-

From your very first glance at a stock chart you will be able to see the weekly trend for the particular share you are looking at investing in.

Here you will see an uptrend, downtrend, or be able to see if the share is trading sideways, meaning there is little or no movement in its value.

Of these three, there is only one direction in which you really want to buy a share and that is when it is trending upward.

If the share you are looking at on the stock chart is clearly heading south, or on a downtrend trend, it is wise not to take on the risk as there is likely a good reason for its declining value.

This is not to say you should never buy this particular share, only that you should wait until it consolidates and starts showing an upward trend again before considering a purchase.

Likewise for a stock trading sideways. There is no particular trend either way so once more it is wise to minimize your risk and wait for a positive trend to begin to occur.

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Price and Volume action-

Here the stock chart will tell the story of whether large amounts of shares are being either bought or sold by fund managers or other large investment groups.

The type of plays these large scale investors make, is the kind that has the ability to rapidly push a share higher or suddenly drive down its value.

But figuring out what these players are up to is really quite easy by simply referring to the price and volume actions that can be found in your chart.

The rational is that these bodies are investing such large amounts of money that it is virtually impossible for them to hide what they are doing so you can literally follow what they are up to by monitoring the price and volume index.

Here you are looking for spikes in volume on the stock chart, and higher than average purchasing quantities for shares you are looking to make an investment in whilst you certainly want to refrain from investing in anything that is showing the opposite to these values.

Support or resistance-

How much support a share receives when it starts to show signs of decline in value is an area well worth monitoring.

To do this you are checking your stock chart for things like the moving average line and the prior buy point.

If large scale investors are showing a solid base of support for a share it generally means it is a good sign to hold or perhaps even to increase your holdings as there is a chance of an even higher rebound from that support base.

Opposed to this is that if a share fails to find support and plummets below a stock chart indicator such as the ten week average heavy buying line, this is a good trigger that it is time to sell.

Once a stock has found a solid support base and its prices begin to rebound, it is time to look at the resistance level.

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A share that punches through the level of resistance is a good indicator that its value will continue to rise, and rise sharply, whilst if it fails to break through that resistance line, this means it is likely to loiter around the same value with mostly sideways movement.

If you follow these three key indicators when reading stock charts, you will get the best guide as to the health of a share and be on the way to making a smart and profitable investment.

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