Here we will dive into some of the key the ways stock charts can help you in the stock market. We’ll give you the list here to get right to the point, then we will dive deeper into each subject. The deep dive will allow you to learn the ways the stock charts can help you. The more you learn about how to read stock charts, the less alien it will feel. As you gain comfort in understanding the ways it can benefit you, you will see the results in your investment portfolio!
- Identify chart patterns that suggest a stock is about to move higher
- Identify signs of risk suggesting caution before buying a stock
- Know which stock patterns have the greatest chance at successful profits
The list above will be added to in the coming weeks.
1. Identify chart patterns that suggest a stock is about to move higher
Many chart patterns we discuss in our Learning Center show key indicators of a breakout after a pattern has concluded. In solid breakouts, the stock chart will show hefty gains days or weeks following a successful breakout out of a sound base. Here we breakdown some of the main chart patterns, but you should follow the link of each of them to get the full descriptions and visuals of what to look for.
2. Identify signs of risk suggesting caution before buying a stock
Chart patterns develop as a result of many factors all lining up well. The more of the characteristics that are missing or showing weak signals, the riskier the stock may be at that time.
Take GMBL (Esports Entertainment) as an example. In February 2021 this stock broke out of a weak double bottom base. We wrote post at the time signaling that this breakout had many areas of risk due to faulty chart pattern formation. Within a few weeks after its breakout, it fell harshly back down close to the range it was on the day after the breakout.
Its important to remember the keys to the specific patterns we link to in #1. Overall there should be some characteristics:
A. The trading volume on the day of the breakout should be at least 50% above the daily average for it to be considered a healthy breakout. The more volume on a breakout day, the better. If the volume is average, or worse – if it is below average, this is a high risk for the breakout.
B. Double bottom bases should see their middle peak in the upper half of the W pattern. If the stock price wasn’t able to make it to the upper portion of the downtrend, the breakout is considered risky.
C. Another double bottom base risk sign relates to the second bottom dip. The second bottom should dip lower than the first did, in order to shake out any investors still barely holding on. If the dip doesn’t accomplish this, you have many investors still in the mix that might dump shares at any time and halt a breakout too early.
Check out each individual pattern from section 1 for further characteristics to help identify when you have faulty bases forming.
3. Know which stock patterns have the greatest chance at successful profits
The great thing about technical analysis and reading stock charts, is that you can perform it on any stock. Keep a watchlist of stocks that have been performing well or you are thinking of investing in.
You can perform these checks for patterns on all the companies you are looking into. This is where the patient meets the impatient. Purchasing a good stock at any time might make you profits, or it might drop hard and lose you money. If you are patient and watch for the chart patterns to form, you can time it perfectly to make the most out of your investment and take profits to bring to your next investment.
We provide analysis in our Stock of the Day section. You can check in here weekly to see if there are any new opportunities we have identified. Here you can also learn what you might have missed after a stock has broken out, to better be prepared for future opportunities.