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When you're new to investing, it is best to start with index funds or mutual funds. This will keep your portfolio diversified and reduce risk.
But if you want to move on to invest in individual stocks, a good first step is reading and understanding stock charts.
A stock chart is a graph that shows the stock price over a specific period. Advanced stock charts will show additional data. The best website for basic stock information is Google Finance or Yahoo! Finance.
The series of letters after the company's name is the ticker symbol and identifies the company on the stock exchange. For example, AAPL is Apple's ticker symbol. Then click the button to expand the chart to full screen.
The Robinhood app can make trading easier by analyzing stocks using the quick-to-open charts. Then, filter the chart from one day to five years' worth of performance.
Trades cost $0 with Robinhood if you wish to invest independently.
A stock chart shows historic prices. It is useful when you can decipher what it's showing so you can make more accurate predictions.
It is essential to understand that stocks will take massive dives and make huge climbs. But it is best not to react to these huge drops or gains.
News will come and go, but pay attention to it when news coincides with a drastic change in the trend line. For example, in 2011, Steve Jobs resigned, and Apple noticed that their profit margins were decreasing despite a growing smartphone market. This and other factors caused the stock price to fall. But new CEO Tim Cook turned that around, as noted on the trend line.
While most companies will bounce back, not all can.
Lines of support and resistance are levels at which the stock stays within over a certain period.
The lines are subjective. Everyone will draw these lines differently, depending on how long they plan to hold the stock. Someone planning to hold stock for a long time won't care as much about the ups and downs, but a short-term investor may draw more lines to analyse trends during a shorter period.
You can see at the bottom of the chart when a company issued a dividend and if there was a stock split.
At the bottom of the chart are small, vertical lines. This is a trend of the volumes at which the stock is traded.
You should not only focus on volumes when you buy a stock. While there's not always a correlation, sometimes volumes can increase to shift the stock's price quickly.
When you are practised at reading a stock chart, you might be looking for more powerful tools, such as:
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