The price of a stock will go up when buyers are more enthusiastic. This means the demand for a stock, the orders to buy, is greater than the supply, which is the orders to sell. When the opposite is true, the price of a stock will go down. If buyers and sellers have about equal conviction, the price of a stock will stay pretty much the same. Understanding this concept is a good start in stock market technical analysis.
Chart reading, also known as technical analysis, provides us with a record of the battle between buyers and sellers. We are able to visualize who is winning this battle by analyzing price and volume action. This can be done on a short or long-term basis. Some analysts also use over-bought and oversold indicators as part of their overall analysis. I do not use these indicators, because markets can certainly go up or down, much longer than, and much farther than, what most people believe is possible.
Chart reading helps us determine the strength of demand versus the pressure of supply at various price levels. This gives us a good idea of the probable direction that a stock will move. Once you know the probable price direction of a stock, you have increased your odds of success dramatically. Successful trading is all about probabilities and putting the odds in your favor.
In the stock market, history does repeat itself quite often. This is because of human nature, which never changes. Human nature with its emotions such as greed, fear, and hope, is what gives us recurring chart patterns. Learning how to properly analyze these patterns, with price and volume analysis, is the key to success.
In my next article on stock market technical analysis, I will be talking about the importance of trends.
About the Author:
By: Gary E Kerkow
Hi, I’m Gary E Kerkow, founder of Tradingmarkets4u.com. This site provides information to help traders and investors become successful. I have over 20 years of trading experience including stocks, futures and options. I implement the strategies, methods, and psychology of the world’s best traders and investors. This includes Jesse Livermore, William J O’Neil and others. Visit my website at www.tradingmarkets4u.com
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