Charting Stocks – the way to Read Stock Charts For Options Trading.
The funny thing is that out of all of the courses I paid for, not one of them showed me easy to read market stock charts secret. Now that I’ve learned it is time to give back and share what I know.
Since stock options are derived or come from stocks, it’s essential to understand how the price of the stock is behaving as this may greatly affect your option’s price.
Charting stocks is no different than doing science experiments in class. You collect information ( stock prices ) and then that information is plotted so you can see the final huge image of what is going on.
Based on the way in which the stock chart looks, you may 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 fully milk what the chart is informing you, you have to first understand the basics of reading stock charts.
What is a Stock Chart?
A stock chart is just a graphical illustration of the stocks price over a set time period. The chart shows you at a glance how a stock has performed.
There are 3 three basic kinds of stock charts ( bar, line, and candlestick ) and depending on your trading style, each chart will serve its own unique purpose. Irrespective of what sort of stock chart you use, all 3 do nothing more than disclose the purchasing and selling patterns of the backers.
This is something that’s hard to discern by reading stock quotes in the daily newspaper. That’s why charting stocks has gotten so invaluable.
4 Key Areas of every Stock Chart:
There are 4 key areas you want to become familiar with when charting stocks:
Identification Section.
Time frame.
Volume Bars.
“X” and “Y” axis.
Identification Section:
Company Name: Potash corporation.
S 1000 tock Exchange Where Traded : Big Apple 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 buck change compared to yesterday’s closing price. The dollar change and the p.c change will be listed.
Timeframe: the chart will display what time-frame you are viewing ( 1 year, six months, for example. ). It is highly recommended to change the timeframe to one that suits your trading style. Having a look at a 3-6 month chart is necessary if you’ve a short term investing plan, and 1-5 years if you have got a long-term investing plan.
Volume Bars: volume is sometimes called the heart of the stock market. It’s a key indicator of supply and demand. By taking a look at the volume bars you can get a warm feeling for the strength behind the stock price movement. A stock moving higher on heavy volume is far more sure 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 is the portion of the graph that has the time frame that you are 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.
fundamentally for the noob, charting stocks boils down to 3 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 look at the chart and identify if the stock’s price has been trending up or down. If it is’s been trending up, I buy call options. If it is’s been trending down, I buy put options.
*You’re going to establish where the stock’s support and resistance levels are. Support and resistance are areas where the stock has had trouble 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’re taking a look at. Basic charting knowledge mixed with other stock indicators can enormously improve your trading skills.
Charting stocks has helped me find several moneymaking option trading opportunities to learn which are top stocks to buy now, and it’s a skill that becomes easier over time .