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How To Read Stock Charts

Investors Magazine - Michael Swanson

There are very few people who fully understand how the stock market works. In fact it is a very small minority that has the proper grasping of stock market charts to the point where they know how to read stock charts and cycles. But anyone can learn a working definition of technical analysis and discover how to read them and use them to successfully invest in the stock market.

Stock charts help you grasp the overall trend of a stock. Is a stock price rising or falling over time and do the patterns suggest a change in trend? Price trends help you to determine which stocks to invest in. If the price trend is straight/constant for a long period you should immediately tell yourself that the company or stock is in a consistent trend.

There are also what are referred to as moving averages. These moving averages can be long term or short term. These averages are used to establish the long term or short term trends at a glance by seeing if a price is above or below the moving averages. Naturally you can make use of a 50 day moving average or a 20 day moving average to determine the long to short term trend of particular shares.

Charts of this nature are a very good guide to understanding certain technical analysis trends. When you have been looking at them closely for several years you can decide which shares to invest in during particular times of the year. Believe it or not but there are a lot of companies whose share prices fall and rise at specific times of the year. Therefore these charts are an excellent lead when it comes to making seasonal choices for investment.

Sometimes the stock charts show the different names of companies and how they have been performing for the past decade or so. With these ones you can easily monitor the media headlines of such companies and note what political; social and economic activities impacted on their share or stock prices. Sometimes certain government or federal decisions can chase away investors resulting in the fall of share prices. Hence it is very important to keep an eye on political and social trends as vaguely indicated by these charts.

Another thing is that charts help you to avoid common investment mistakes. The common phenomenon amongst lay investors is that they will simply put their money into stock picks that are performing well at that time. But a clear look at trends over a few years will tell you that such investments were ill-timed. If such people had taken their time to observe the history of stocks they would not have made such impulsive decisions. Unfortunately it is not a lot of people who take time to assess and analyze them.

Do not be worried about how some of these charts will appear complicated. With time you must very easily be able to interpret them and make worthwhile financial investments.

There are some unique patterns that occur right before stocks make big moves. I explain this pattern in much greater detail in the Two Fold Formula guide. It comes for free with my free weekly newsletter about the stock market.

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Hello. My name is Mike Swanson. I’m the best-selling author of the book Strategic Stock Trading. In a former life I used to run a hedge fund from 2003 to 2006 that generated a return of over 78% during that time frame. In fact it was ranked in the top 35 out of 5,000 hedge funds in 2005.

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