Basics of Reading Stock Charts

You will find different types of stock charts everywhere, but how to read those charts may seem to be difficult but it is not. Anyone can read the stock charts easily and effectively. With little practice and experience you too can read stock market charts. There is no rocket science.

Before reading the charts, remove most of the indicators. It is better if you start with the bare necked chart. If you look at the stock chart, you will see three types of moves, one is going up, second is going down and third is horizontal or not going up or down. This move is termed as trend. When you see a chart in which prices moves up, you can read it as up trend and when prices moves downward you can read it as down trend and when prices remain more or less constant, you will read as consolidation.

However if you want to read larger period stock charts then you may see all these trends in a single chart. You may see uptrend then consolidation and then downtrend. Reading this type of chart is also not difficult. You can use Moving average indicator to read these types of charts. It is possible to change the period of moving average to suit your particular requirements.

You can use combination of short and long term moving averages to find when to enter or exit. Look at the chart with say 15 and 50 period MA and you will immediately see there are many places where these two moving averages crosses with each other. When short period MA crosses long periods MA, the trend is usually up and you should buy at this point. Similarly when long period MA crosses the short period MA, it is starting of the down trend and you should sell.

You can also read the support and resistance level. When the prices in a chart feels some resistance that is if price can't move further up then this is called the resistance and when the price of a stock stops moving further down then that level is called support level.