Posted by forex at 1:22 AM
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1. Open your charting software or visit a website that offers stock charting services. The stock chart is the most basic component in technical analysis. It displays a stock's changing prices over time, with price as the vertical axis and time as the horizontal axis.
2. Select any stock you wish to analyze. Stocks are characterized by 'ticker' symbols, such as HD for Home Depot and HPQ for Hewlett-Packard. Most charting platforms or services allow you to either enter a ticker symbol directly or find it ker based on the company's name.
3. Create the stock chart based on the ticker symbol you have selected. In most software programs and websites, this involves simply typing the symbol into a small text field and pressing 'Enter' or clicking another button that draws the chart automatically.
4. Identify the turning points on the chart. When stocks rise to a certain point and then fall from that price, this creates a 'high' on the chart. This high may be higher or lower than the previous high. Likewise, the decline off a high leads to another turning point, the 'low.' This low may also be higher or lower than the previous low.
5. Look for sequences of 'higher highs and higher lows.' A 'high' resembles a 'peak' that stands out clearly on a price chart. A 'low' is the opposite and is the lowest point prices reached over a short period of time before reversing. If each subsequent peak is higher than the previous high, and each low ends at a higher point than the previous low, this is a 'trend.' One hundred years ago, Charles Dow outlined this basic pattern. Trend analysis is the most basic yet powerful feature of technical analysis. Buying stocks that are trending in this way increase your odds of success in making a profit.
6. Add a 'moving average' to the price chart. Most charting software offers the ability to add this indicator. The field of technical analysis uses hundreds of indicators to evaluate a chart's price action. The moving average is among the easiest to understand. It displays a line on the price chart that does not show current prices but rather the change in average price over a given period of time. At any location on the chart, the moving average shows a price level that is the average of the previous prices that occurred before that moment. The moving average indicator smooths out the day to day price fluctuations and gives a clearer overall price trend.
7. Identify the direction of the moving average. These simple lines are either moving up or down or remain 'flat' by just moving sideways like a horizontal line. A moving average that is rising can be a useful method for identifying strength in a stock. Some stocks are too volatile to easily see which direction they are ultimately moving over time. If the moving average is steadily rising, the stock is gaining in value even if its chart makes this difficult to see.