Interpreting Price Movements

Many people these days are interested in building long term wealth, for themselves, their families and their businesses, but they are also skeptical of putting their money in the hands of outside professionals that value it far less than they do. As a result, many are cautiously venturing into the world of stock market investing, but instead of relying on brokers and traders to do the work for them, they are getting educated and taking control of their own stock market portfolios. Becoming a successful independent investor requires people to learn about chart trends and how they can be used to guide wise decision making.

As you make your way into the world of stock market trading, you'll start to notice that there are lots of stocks to pick from, thousands in fact. It's very important that you learn the difference between the different types of stock, as well as the histories of the companies that they represent. But your homework won't end there. In fact, you'll have to commit to a daily analysis of the market and the chart trends represented by the price movements of those stocks as well. The methods that you use for this will vary, and most people end up developing their own combination of techniques.

In many investment forums, you'll hear people say that they depend on the principles of technical analysis for making their stock trading decisions, and there's definitely some wisdom to this choice. Technical analysts rely only on the tracking of price movements over time and the patterns and chart trends that emerge there as the basis for their stock picks, and decisions to buy or sell. Although some traders will discourage this dependence on market timing, it's safe to say that with the right level of knowledge, this is usually a profitable stock market strategy.

Simply put, chart trends are demonstrations of a stock price that continually closes higher, or lower that the previous days. An uptrend is said to occur when there has been a significant period in which the price of a certain stock has consistently closed higher than the day previously. If you looked at this trend on a chart with an x and y axis, the line formed by this activity would have a positive slope. Conversely, a downtrend is said to occur when there is a series of days in which the stock closes at a price that is lower than the day before, forming a negatively sloped line.