A key component in a stock trading system is charts. Charts monitor stock movement over time and the trading style will determine the timeframe of investigation. Day traders are interested in changing patterns over hourly increments whilst longer term investors monitor stock changes over weeks, months and even historically over years.
What are some of the things to look for in stock charts? A trading range is where a stock's price movement fluctuates between between two values. This gives a sideways movement to the stock value over time. Trading stocks based on a trading range can be used for smaller percentage profits. Another aspect of a stock exhibiting a sideways trading range, is to be on the alert for the stock to break out of that pattern since this can indicate rapid changes in stock value representing opportunity for financial gains or the potential for losses to cut.
When the movement of stock price is graphed and three peaks or troughs can be joined by straight line, this is said to indicate a trend. Both upward and downward trends have the potential for profit depending the what you have predicted the stock will do and how you have positioned yourself in the market. Shorting stocks is a method which relies on a drop in the stock price whereas trading long, means to buy low and sell high.
Used wisely, custom stock charting software can be a tremendous boon in analyzing very large amounts of data and presenting it in a way that can make it easier to see what is going on with a particular stock or to make comparisons between stocks. Different trading indicators can be overlayed on the same chart to provide different points for comparison.
In the end, a trader will develop their own personal style irregardless of whether the latest technology for data analyis is used or the preference is for something simple like a spreadsheet. No system is 100% perfect and the aim is not to win all the time but for the wins to exceed the losses by a fair margin and in an acceptable timeframe.
Being a savvy trader means to be aware of changes in the landscape of trading systems. At the same time, have the flexibility to create and tweak your system as a blend of both personal insights and trading tools.
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