In addition, Elconin says traders should understand that fundamental news, such as an earnings beat or a CEO departure, will typically have a larger influence on stock price movement than technical patterns or trends. “I try to keep it simple for short-to-medium term trading and focus on easy patterns, such as double and triple tops and bottoms and multiple closes at the same level.” “Many investors overcomplicate technical analysis and can end up with analysis paralysis,” Elconin says. Joel Elconin, co-host of Benzinga’s PreMarket Prep and co-founder of market research firm, says it’s easy to get overwhelmed with technical analysis, so new traders should keep things simple. Long-term investors use stock charts to get a general sense of a stock’s price trend or relative performance. Traders use stock charts and technical analysis as their primary means of determining when to buy and sell stocks. Traders look for high trading volume to confirm a true breakout has occurred. The intraperiod highs and lows are represented by the “wicks” or “shadows” of the candle, vertical lines that extend out from the tops and bottom of the candle body. In a candlestick chart, the opening and closing prices of a period are represented by the body of each candle. Line charts, candlestick charts and bar charts are among the most common styles-each provide investors with a different way of looking at similar information, including opening and closing prices as well as intraday highs and lows. There are a variety of stock chart styles. Many technical traders also use other price and volume-derived indicators, such as moving averages, Bollinger Bands and oscillators to identify potential buy and sell points. Technical traders often identify support and resistance levels in a stock chart, which are price ranges at which a stock is likely to change direction. Technical analysis involves recognizing patterns or trends in a stock chart and using them to predict future price movement. Technical analysis is an alternative to fundamental analysis that is focused purely on a stock’s past price movement. The lower a stock’s P/E ratio, the more attractive it may be to value investors. One popular fundamental analysis metric is price-to-earnings ratio, which is calculated by dividing a stock’s share price by its EPS. Stock charts typically include data on a company’s underlying business metrics, commonly referred to as a company’s “fundamentals.” Investors use metrics like revenue, earnings per share (EPS) and free cash flow for fundamental analysis of a stock.įundamental analysis involves analyzing a stock by comparing its business fundamentals to its stock price and attempting to identify value. Fundamental Analysis vs Technical Analysis Investors often watch for big spikes in trading volume, as they tend to coincide with insider or institutional buying, important news or a change in a stock’s trend or pattern. Volume represents how much demand there is for a particular stock. The bar graph at the bottom of a stock chart tracks trading volume, which measures the number of shares of stock that are bought and sold in a given time period. By analyzing how a stock’s price has changed over time, investors can identify trends and patterns that inform their strategy. A stock chart’s y-axis tracks prices and its x-axis tracks time periods-from minutes and hours to months and years.
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