Charting Basics

Understanding how to read charts is a pivotal part of being a successful and well-rounded trader.

I have met and know many extremely successful traders that never use chart research in their trading. This is done more so on the professional, market maker side of the business, and is not commonly done as a self-directed trader/investor.

In order to maximize profits, decrease capital risk, and put on trades with more confidence – it is very important to understand how to read, interpret, and analyze the price chart on the underlying security.

Chart reading is a very tailored process because what works for one trader might not work for another.

Things to Take into Consideration when Developing Your Charting Style:

Color Preferences
Time Frames
Importing Watch Lists
Moving Averages
Streaming vs. Non-Streaming
Volume
Basic Indicators (MACD, Stochastics, etc.),
Advanced Indicators (Bollinger Bands, Parabolic SAR, etc.)
Chart Type (Candlesticks, Bar, Line)
Saving Your Style
Back-testing Your Chart Preferences
Testing New Techniques

In order the effectively interpret a stock chart you must understand and be able to answer the following questions:

What is the current trend?
How much volume has occurred?
Where is support and resistance?
What is my directional bias and risk?
What option strategy can I use to profit?

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