How To Use A Stock Market Graph System

You can easily learn how to use a stock market graph to determine in which direction a particular financial market is likely to move. But if you seek regular, profitable trades (and who doesn’t?) it’s quite evident that graphs alone are not enough.

We know that higher highs and higher lows mean a bull market. But how do we know from the chart that the trend will continue? We can calculate the resistance level, but these can be and often are broken. What if it has already been breached and the chart shows no sign of the upward movement ending?

Are you going to invest your money on the basis that the bull market will continue? Or stand by and risk missing out on easy profits? Perhaps you’re a swing trader and decide to go short. At this point you’re probably going to turn to fundamentals (unless you are a die-hard technical analyst) for further guidance.

So what I’m saying is that there’s a problem with using charts and graphs alone, even allowing for all the indicators that go with them. Because what ought to happen seldom actually happens, or at best happens but at a different time from that indicated by your graph.

However, provided you use your charts and graphs strictly to supplement other stock market trading systems that are based on market information, or fundamental analysis, then your chances of success in any given trade increase dramatically.

Take the commodities market. If you know that production of aluminium, for example, has recently been reduced, and you also learn that a number of government-backed projects consuming large amounts of aluminium have been or are about to be announced, then it is fairly safe to say that the price of aluminium will be going up sharply in the near future as production facilities have to be re-opened and further investments made.

Going long in aluminium or the stock of a major aluminium producer in such a case gives you an excellent chance of profits. But in order to maximise those profits it is prudent to consult your graphs, or charts. It may be that aluminium is still near a 50 day high and hasn’t yet reacted fully to the news of production cut-backs. This is how you can use a stock market graph system to cover yourself against defective trades, or alternatively give you more confidence that your trade is a good one.

In summary, information is king, but in the financial markets it pays to check it against what your charts are telling you to ensure that not only have you taken the correct position but that also your timing is not too soon or too late. That’s what the most successful traders tend to do.

Philip Gegan