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Sunday, July 25, 2010

Understanding Stock Charting

The purpose of Stock Charting is to:

1. Show that you can plot the change of the stock price over time on a graph.

2. Analyze the history of stock price changes over time.

3. Attempt to predict the future price of a stock based on prior price history.

4. Show by adding volume to a chart makes it a complete chart, and finally to

5. Allow "chartists" or people who study chart formations or patterns on charts to attempt to predict future prices of equities, where a price will stop, or future supply and/or demand of an equity or stock.

A stock charting system or analysis is only an educated guess, it is not a guarantee of future prices. The "educated guess" is based on what has happened in the past. The charts display past stock activity.

When you view stock charts you will see lines and bars on every chart you open.

The lines and bars at the top and bottom of the stock charts are plotted using various indicators. There are several different types of indicators, which can be plotted to show price movement over time.

The bottom indicators act as filters to give you an idea of the probability that your top graph is actually moving, in a particular direction.

If your line on the top portion of your graph is moving up and the volume bars are increasing simultaneously, this is a good indicator that the stock is being purchased and the price is definitely increasing.

When you view stock charts in the financial section on the internet you will see "price," "volume bought or sold" and other indicators you can follow. An indicator visually demonstrates different types of market activity such as volume, trends and volatility of a stock. The most common indicator plotted on the top graph is the SMA or single moving average. A filter is placed at the bottom of the graph to give us an idea of the probability that the top graph is going to continue on its course.

The most common indicator at the bottom of the stock graph is Volume. When the lower volume bars are displayed as going up with the top single line, chances are good the stock is on an up trend.