Charting Stocks – How 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 not difficult 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 essential to know how the price of the stock is behaving as this will really affect your option’s value.
Charting stocks isn’t different than doing science experiments in class. You collect info ( stock prices ) and then that information is plotted so you can see the overall big image of what is occurring.
Based on the way in which the stock chart looks, you’ll invent a trading plan and trade in the direction of the trend.
Charting stocks can shield you from gigantic losses and help you further your option trading gains. In order to entirely take advantage of what the chart is informing you, you must first understand the fundamentals of reading stock charts.
What’s a Stock Chart?
A stock chart is just a graphical illustration of the stocks price over a set period. The chart shows you at a peek how a stock has performed.
There are three 3 basic sorts of stock charts ( bar, line, and candlestick ) and depending on your trading style, each chart will serve its own unique purpose. Regardless of what type of stock chart you use, all 3 do nothing more than disclose the purchasing and selling patterns of the stockholders.
This is something that is hard to discern by reading stock quotes in the daily paper. That’s why charting stocks has gotten so useful.
four Key Areas of every Stock Chart:
There are four key areas you need to become acquainted with when charting stocks:
Identification Section.
Timeframe.
Volume Bars.
“X” and “Y” axis.
Identification Section:
Company Name: Potash Corporation.
S one thousand tock Exchange Where Traded : Manhattan Stock Exchange “NYSE”
Trading Symbol: POT.
Current Date: ( top left corner ).
Days Price Change : opening price, days price high, days price low, and final 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 % change will be listed.
Timeframe: the chart will display what time frame you are viewing ( one year, 6 months, for example. ). It is strongly recommended to switch the time-frame to one that suits your trading style. Looking at a 3-6 month chart is required if you’ve a short term investing plan, and 1-5 years if you have a long term investing plan.
Volume Bars: volume is commonly called the guts of the stock exchange. It’s a key indicator of demand and supply. By taking a look at the volume bars you can get a good feel for the strength behind the stock price movement. A stock moving higher on heavy volume is far more likely 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’re 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.
basically for the amateur, charting stocks boils down to three things:
*You’re going to take 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 take a look at the chart and identify if the stock’s price has been trending down or up. If it’s's been trending up, I buy call options. If it’s's been trending down, I buy put options.
*You’re going to figure out where the stock’s support and resistance levels are. Support and resistance are areas where the stock has had difficulty proceeding past, or an area where the stock halts and changes direction.
A stock chart can provide you with a wealth of information as long as you know and understand what you are having a look at. Basic charting knowledge mixed with other stock indicators can enormously improve your trading talents.
Charting stocks has helped me find several profitable option trading opportunities to learn which are top stocks to buy now, and it’s a skill that gets less difficult over a period.
