What to look for in stock charts?

[Jordan Maddison]

Hi, what should I look for in stock charts?

[Rishabh Tyagi]

Look for the the story.

Observe the charts, and try to understand the momentum of the stock. The huge red or green candles that you see are the result of institutional or big players buying/selling. It's not possible for retail traders to create such volatility.  

Things you can observe

- Stability

• If the price is not respecting the support or resistance, and trading with stability near the levels, that means we can see a breakout. 
• The price is sustaining the gains or loss after a gap-up or gap-down, and failing to recover. Eg; after a gap-down if the price is failing to recover or fill the gap, that means big players has trapped buyers, and the stock can decline more. 

- Volumes. The real difference between retail and institutional traders. 

We can sell or buy whenever we want, but institutional traders don't have that option due to their huge orders not matching the available trading volumes.  

If Xx is an institutional trader, and Yy is a retail one, in order for Xx to buy the Yy has to sell. So, Xx can either spread some temp negative news, or make fake shorting setups in the charts to force Yy to sell. Try to observe such action. 

- Trading Range

• Do one thing, open the charts on day, 1 hr, and 5 min time-frame. And you'll observe, most of the time the price is moving in some trading range.
• Try to observe and mark these ranges, and find trading opportunities on a breakout on either side of the range.  

- To learn more, you can check out the Chart Patterns Guide by Steve; https://www.asktraders.com/learn-to-trade/technical-analysis/stock-chart-patterns-for-beginners/

How can you catch such moves

- Observe how the price is behaving near support and resistance levels.

- Do a top bottom analysis. For swing trading, analyse the overall momentum of the stock on day frame, and for day trading, analyse the current swing momentum of the stock. This will strengthen you strategy, and help you take better trade decisions on you trading time-frame.   

- Keep track of the trading ranges. 

Example

META broke the 245 level, and sustained the gains for 3-4 days. A clear sign, that bulls are strong when sellers can't even take the price below the breakout level, near resistance. 

 

Chart Patters Guide by Steve; https://www.asktraders.com/learn-to-trade/technical-analysis/stock-chart-patterns-for-beginners/

Edited July 22, 2023 by Rishabh Tyagi

[Hannah Fischer]

Hello, thanks for asking the question.

When it comes to investing in stocks most important things to look out for are: trend line, lines of support and resistance,  knowing when the dividends and stock splits occur and to understand the historical trading volumes.

Trend line is an indicator of value of the chart, in itself it contains the historical trajectory of a stock's value and it can be used as a handy tool for predicting the potential value of a stock.

Lines of support and resistance are there to instruct the buyer about the downside and upside cap value of the stock, in other words, they represent the limits beyond which stock shouldn’t rise above or fall beyond.

Dividends and stock splits, in the first case it means that company has decided to pay out a chunk of profit to its shareholders, and it also means that company has decided to sell more stock and it is looking for investors which is a good way to get into stock owning.

As for understanding historical trading volumes, it is important to understand these as these volumes dictate the rise and fall of a specific stock, so knowing these enables a person to predict the rises and falls of stock’s value.