Often when people begin their investment journey in the stock market, they are swamped with multiple questions in their mind. The very first basic question that comes to the mind is how to determine which stock to purchase and which to avoid. Well, the answer to this question is - stock charts.
The stock charts help you in evaluating and gathering all the important information that you must consider before purchasing a stock. By learning stock pattern analysis you can not only become a successful investor but also a successful trader. In this article, you will be learning the different aspects of stock chart reading.
Let us first understand what are stock charts?
What are Stock Charts?
Stock chart is a sequence of prices plotted on a graph over a different timeframe. The y-axis i.e. the vertical axis of the chart represents the price and the x-axis i.e. horizontal axis of the chart represents the time period.
Learning and understanding stock chart reading may look like a tough task initially but with little practice, you can master the art. All you need is the correct understanding of the basics of chart reading. They can help you predict the future price movement correctly.
Let us now understand the various aspects of stock charts.
What are the aspects of Stock Charts?
- Price and Volume
The charts are generally divided into two parts; the price of the stock and the volume of the stock. For correct stock chart analysis and reading of stock chart patterns, it is important to read both price and volume together. This is because if you look only at the movement of the price you would not know how genuine the buying or selling is. For example, a stock has fallen over 5%. Initially, it may look very bad but if the fall is with lower volumes than the average, you may continue to hold the stock because the selling is not done by large retailers who drive the market. The same is the case when the stock is rising but with lower volumes. This rise in the stock price could be fake because when the big players enter the stock there would be a huge rise in the volumes.
- Moving Average Lines
Moving average lines are very important to understand the performance of a stock. They represent the movement of the share price over a period of time. With the help of moving average lines, you can understand whether the stock is overbought or oversold by large retail participants. The mutual funds and big institutions follow the stock chart patterns and change their positions in stocks when the price rises or moves below the moving average point on the graph.
The key moving average points can be a 50-day line, 15-week line, etc. When the stock falls below the benchmark moving average line, the big players often sell their holding and exit the stock. Similarly, when the price moves above the benchmark moving average line, the big players enter and the stock price can rise sharply.
- Relative Strength Line
Relative strength line helps to identify if the stock is a market leader or laggard. This is done by comparing the performance of a stock with the index i.e. Nifty or Sensex. A sharp line rising upwards on the graph indicates that the stock is outperforming the market while a sharp line downwards is an indication that the stock is a laggard and underperforming the overall market. The stock comes in the leadership territory when the Relative Strength line is rising for a breakout and set for a new high in the market.
After learning about the various aspects of stock charts, let us learn about some of the basic stock chart patterns.
Stock Chart Patterns
- Daily Stock Chart
A daily stock chart on a graph represents the movement of the stock price on a specific day of trading. The day traders use daily stock chart patterns to take intraday positions. The chart has multiple moving day averages like 50 days, 100 days, etc. which the traders monitor continuously to take positions. When the stock rises sharply it is represented by a sharp line rising upwards and when the stock falls, the graph shows a sharp fall in the line.
- Weekly Stock Chart
Just like a daily stock chart represents the stock price movement on a single day, similarly, the weekly stock chart represents the price summary of stock for a single week. This chart is generally used to forecast the price of stocks for the long-term. The weekly charts can display longer-term data on the screen which makes it easy for the analysts and investors to determine the long term trend of a stock.
The new investors often get confused between the weekly and daily charts. The confusion is mainly regarding which charts are suitable for them. This section of the article will try to resolve that dilemma.
- Daily Vs. Weekly Charts
The daily charts are said to be good for the traders who are looking for volume and price action on an intraday basis. The stocks on daily charts are said to be giving a breakout when it breaches the 50-day line on either side. On the other hand, for long term investors, weekly charts are ideal. These charts forecast the long term price of a stock along with its trend. It also keeps the investor's emotions under control as they can take wrong decisions looking at the volatile daily chart movements.
The Bottom Line
There is no doubt about the importance of stock charts in the share market. You can decode the price movement on charts and take advantage of it by making profits. If you want to learn more about stock chart reading and indulge in trading or investing based on it, you can contact IndiaNivesh Ltd. We are one of the most trusted and value-enhancing financial group with new technologies in India.
Disclaimer: "Investment in securities market and Mutual Funds are subject to market risks, read all the related documents carefully before investing."
Looking to become a successful investor? If yes, then you need to make efforts to maintain a good portfolio. As an investor, you need to understand your financial goals, your future requirements and risk-taking ability in order to determine your asset allocation. Building a good portfolio with the right mix of different asset classes will help you in generating wealth and living a peaceful life after retirement. This article will assist you in building a complete financial portfolio. Let us learn about the steps for building a financial portfolio. Steps For Building Financial Portfolio Make A List Before you begin making a financial investment portfolio, you must prepare a list of everything you own. The list must include all your assets like stocks, immovable property, cash and bank balance, bonds, etc. Also, prepare a list of liabilities. This balance sheet is going to play a critical role in shaping your financial portfolio. This list will act as a benchmark for your financial portfolio management. Know Your Appropriate Asset Allocation After knowing all your assets and liabilities, determine your financial goals and shape your financial portfolio. You must consider your age during financial portfolio management because only then you would know what would be your upcoming needs and how much capital you can invest. Another factor that you must consider before determining your asset allocation is the amount of risk you can take. If you are clear with your future financial requirements you would be able to easily figure out your risk tolerance. It is a well-known fact that higher returns can be made only by taking higher risks. In such a scenario, the general rule is that if you are young, you can take bit of a risk. But if you are nearing your retirement, it is recommended to build a safe and secure financial portfolio. To put it another way, there are two types of investors; conservative and aggressive investors. Conservative investors are those who would make a less risky portfolio by investing a major portion of capital in fixed income securities and small portion towards equities. Aggressive investors are just opposite of conservative investors. They are willing to take more risk in anticipation of good returns by investing a significant portion of capital in equities and remaining in fixed income securities. Build the Portfolio After determining the right asset allocation, build the financial portfolio. Here you can break different asset classes into subclasses. Like, if you are investing in equities, you can divide your investment in the equities into various sectors like pharma, banking, etc. The duration of the investment in bonds can be divided into short term and long term. Thus there are many ways through which you can select the asset and securities. While investing in each asset class consider the below-mentioned points:1. Stock Picking: If you are investing in stocks, determine the level of risk you are willing to take. In addition, know the sector well before investing. Understand the market cap of a company, the future of a particular sector, the opportunities and risks in the future. You must make sure to regularly monitor the investment in equities by following the stock price, company and industry news.2. Bond Picking: Before investing in bonds, consider the time period, maturity, credit rating, bond type and interest rate. Invest only after understanding the above factors in detail.3. Mutual Funds: Mutual funds allow you to hold stocks and bonds that are managed by professional fund managers. Before investing in mutual funds, find the track record of the fund managers and fee charged by them. Low-cost index funds are another good option to invest for risk-averse investors as they replicate the performance of an index.4. Exchange-Traded Funds: Exchange-Traded Funds are a good alternative to mutual funds. They are just like mutual funds and represent a group of stocks. However, they are not actively managed like mutual funds. Because of passive management, these funds are less costly than the mutual funds and also offer good diversification. Keep Assessing Portfolio Weightage After preparing a financial investment portfolio, its value would keep on changing due to price fluctuations. Therefore, it becomes important to continuously rebalance the portfolio as per the price movement. Also, the market situation keeps on changing so you also need to alter the balance of your portfolio accordingly. While rebalancing the portfolio, analyse your future needs and risk appetite. Like, if you are ready to take more risk you can increase your stake in equities. Therefore, rebalancing is all about determining which asset class in your financial portfolio is overweight and underweight. Strategy to Rebalance After determining which securities to reduce or increase from your financial portfolio, you can again follow the process given above under “Build Your Portfolio” heading. By using the same investment approach, you can pick the securities you want to invest. If you feel that some securities in your portfolio which are overweight can fall, you can consider selling them and purchasing another set of securities. In the whole process, you must not forget the tax implication of your decisions. The above mentioned steps shall help you in building a complete financial portfolio. During the whole process, you must always remember that diversification is the key to building a safe and secure portfolio. If you are a beginner or need any assistance in building a financial portfolio, you can contact IndiaNivesh Ltd. We are one of the most trusted and value-enhancing financial services group in India.Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.
Stock market is one of the biggest wealth creators in India. It is the most popular investment option that provides ample opportunity to multiply your capital. There are number of ways or strategies through which you can do stock investment. The stock investment strategy varies from one person to another as it majorly depends upon your financial goals, risk appetite and investment horizon. In this article, we will walk you through the strategies that you can use while investing in stocks. Stock Investment Strategies Invest in Business, Not Stocks One of the important principles of stock investment is that you must invest in the business and not in stocks. This means that if a business is viable and has a bright future, the stock price will ultimately move up. You must avoid looking at the market trends and other noise and study the fundamentals of a company. Purchasing the stock of a company having a good business and whose probable future performance seems bright will help you in earning higher returns. This, however, requires research, long term commitment and patience to hold the stock for the long term. Be Passionate About What You Buy When you make a stock market investment you must be passionate about the companies where you are putting your money. Being passionate here means that you must keep each and every information about the business of the company. This is because often the investors get trapped by buying stocks just by looking at the financial statements. Instead, you must conduct deep research about the various ratios like price to equity, debt to equity, EPS, etc. When you invest in companies by looking beyond the financials, you are likely to make higher returns and keep them for a long period in your portfolio. Thus, getting into the deep details of the company should be your mantra for stock market investment. Invest in Companies Whose Business You Understand You must make the stock investment in those companies whose business you understand easily. To become a successful investor, you must be aware of the various activities of the company and sector in which you are investing. However, sometimes it might not be possible for you to get or understand each and every detail of the company. In such cases, as an investor, you have to factor that as uncertain risk. Moreover, value investors look for simple business model companies because in such companies even incompetent management cannot cause much harm to the business. Invest in Well Managed Companies It is no secret that the market has always been harsh on companies that have poor management quality. Therefore, before making stock market investment, you must find companies that have a good set of management. Good management can do wonders for a company. There have been many cases in the past where investor’s stock market strategy has been to invest money in companies with good management and they have made huge profits in the long run. Good management always ignores the market value of a company and focuses on business growth. Ignore the Market Most of Times When making the stock investment, you must ignore the market. This is because you are making an investment in the company and you will hold on to it until the fundamentals are good. The market may have a temporary effect on the price of the stock but in the long run stocks with strong fundamentals will give you good gains and help your portfolio grow. There would be times when there would be huge sell-off in the market and holding to the stocks during such period is the key to success. Diversify But Don’t Over Stress It is a known fact that a diversified portfolio is the best portfolio. However, one should not overstress on diversification. This is because there can be a scenario in the market where only a few stocks are having a good run and adding them in large quantities would be against the diversification theory. In such situation, a value investor invests more money in stocks where the upside is obvious rather than keeping his capital idle. Be Consistent Always maintain a consistent approach to be successful in the stock market. Investors always seek the best stocks to buy today and in the process forget to maintain discipline. You can build and maintain your portfolio well when you are consistent with the strategies, your financial goals and have the patience to hold stocks for the long term. Taking irrational decisions when the market is volatile can prove to be fatal and it is against the basic rule of investing in the stock market. The above mentioned are a few strategies for investing in stocks. The best stock to buy today shall always be the one that successfully meets your research and analysis benchmarks. If you want any more assistance for stock investment, you can contact IndiaNivesh Ltd. We assist you in creating wealth through our customised solutions. We aim to exceed our client’s expectations in all endeavours. Disclaimer: "Investment in securities market and Mutual Funds are subject to market risks, read all the related documents carefully before investing."
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