How to Read Stock Market Charts and Indicators
Stock market charts are graphs which may be complicated. However, they are merely graphs showing the changes in the prices of stocks over a given period. Let’s understand how to decode such graphs with a few examples and tips.
What Are Stock Market Charts?
Stock market charts are like maps. Just like a weather map shows if it will rain or shine, these charts show if stock prices are going up, down, or staying the same.
Let’s say Ravi owns a shop. He is keen on observing the chocolate sales per day. When the sales are high, he orders for more stock and when the sales are low, less stock is ordered. Stock market charts help traders do the same, but with stocks instead of chocolates.
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Types of Stock Market Charts:
There are three common types of charts:
- Line Chart: It’s like a drawing showing only the closing price of a stock over time.
- Bar Chart: This includes four important things: opening price, closing price, highest, and lowest price.
- Candlestick Chart: It is similar to a bar chart but looks like candles. It’s very popular among traders.
To understand it in a better way let’s take an example:
Let’s say Ravi is now interested in investing. He notices a stock of a chocolate company.
- In January, the stock was ₹100 per share.
- By March, it went up to ₹150.
- By June, it dropped to ₹90 due to high sugar prices.
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Ravi had experienced a trend in the stock with the help of a line chart. He observed that the prices had gone up and down. He decided to buy the stock when it was ₹90, thinking it might go up again.
Patterns in Stock Charts:
At times charts show trends which will help to predict what might happen next. Some of them include:
- Cup and Handle: Looks like a tea cup. It shows the price might rise soon.
- Head and Shoulders: Looks like a head with two shoulders. This means prices may drop soon.
- Double Bottom: Prices hit a low twice and then start rising.
Indicators That Help Traders:
Indicators are like calculators. They help traders study stock prices more deeply.
| Indicator | What It Does |
| Moving Average (MA) | Shows the average stock price over a few days to see the trend. |
| RSI (Relative Strength Index) | Tells if a stock is overbought (above 70) or oversold (below 30). |
| MACD (Moving Average Convergence Divergence) | Helps spot changes in trends, like if the price will rise or fall soon. |
A Fun Statistic
In the year 2020 when the global pandemic began to take its toll, the share price of one of the famous grocery chains increased by 50% within a span of two months. Why? People bought more groceries during lockdowns. This shows how real-life events can affect stock prices.
Simple Steps to Read Stock Market Charts
- Checking Out the Chart Type: Is it a line chart or bar chart or maybe, a candlestick chart?
- Understanding the Time Period: Does it show daily, weekly, or yearly data?
- Looking for trends: Are the prices trending up or down?
- Use Patterns: Look for shapes like a cup or double bottom.
- Pairing With The Indicators: RSI or some other tool to buy or sell depending on the signals generated.
Should you Choose the Strategies and Techniques?
Investing your finances does not mean you have to purchase foreign stocks or shares. Just like Ravi planned his chocolate stock, you can plan your future savings and investments.
Learning these skills early can help you make smarter financial choices as you grow up.
Conclusion:
The earlier you start acquiring these skills, the better financial decisions you can make to yourself while growing up. Just like Ravi used charts to make informed choices, you can use this knowledge to plan your financial future wisely. Start small, observe patterns, and over time, you’ll build the skills to confidently navigate the stock market. Remember, practice and patience are key to success in investing.