Stocks Technical Analysis Tutorial
- 1). Chart any stock of your choice. You can use trading software, such as that provided by a broker, or visit free stock charting services online. To create the chart in most programs, simply type the stock's ticker symbol into the charting field and press "Enter" or the "Go" or "Chart" buttons in the platform.
- 2). View the chart that appears. It will show each day as a bar or "candle." Each bar will span the full trading range for the stock on a day, from its lowest to its highest prices.
- 3). Identify the "highs" and "lows" on the chart. A "high" is a point that stands out as a peak in the price fluctuations. It is the highest price reached in the stock over a period of time. A low is the lowest price reached over a period of time and appears as a valley on the chart. All charts have multiple highs and lows that are easy to quickly see. Sometimes these points occur in quick succession, every few days, while in other cases, with less volatility, the obvious highs and lows are more spread out.
- 4). Look for signs of a trend in the stock chart. The basic definition of a trend was laid out by the "Dow Theory," the first formal method of technical analysis from nearly a century ago. This theory states that a trend is a pattern of "higher highs and higher lows" or a sequence of "lower highs and lower lows." If a high is higher than its previous high, while the low after this high is higher than the previous low, an up trend is in place. You can reasonably expect such a pattern to lead to higher prices over the ensuing days or weeks.
- 5). Apply a moving average to the chart. These are the most basic and popular of the "indicators" used in technical analysis. A moving average simply plots the average price over many days on the chart for each bar and then connects these plotted points to create a line. If the average is moving higher over time, this suggests an up trend and in conjunction with Dow Theory analysis, the two together can give you good reasons to buy into a trending market.
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