Technical Analysis: Reading Stock Price Charts Like a Pro

Understanding technical analysis is key to predicting stock price movements

As you guys might have known, I have explained all the formulas, basics and tips to investing. However, one very important thing is left: Technical Analysis. It may seem puzzling at first, but let me break it down for you guys. As I have previously explained, stock prices move due to emotions like fear and greed in the short term. Technical analysis includes the use of price charts to help read these emotions. In this blog, I will explain to you guys how to technically analyze a stock and determine whether it will go up or down. Let’s dive into it!

Why Use Technical Analysis?

Well, it’s not about guessing the exact future price—that’s impossible. However, we can predict using these analysts if the stock price is more likely to go up or down. We aim to buy when stock prices are likely to go up.

What is a Candlestick Chart?

A candlestick chart is one of the many price charts used to analyze a stock. It shows the open, close, high and low prices of a stock. Say that in 2023, the stock price was 150, and in 2024 it was 200. The open price would be 150, the close would be 200, the high would be the highest price during that time—let’s say 210—and low would be the lowest price during that time, maybe 145. If it’s a green candle, that means the price went up, but if it was a red candle, that means the price went down.

How to Spot Trends?

Uptrend: An uptrend is when the stock price is going up over a period of time. The best time to buy is when the price dips a little.

Downtrend: A downtrend is when the stock price is going down. Over here, you should be careful and wait for signs of recovery before buying.

Sideways: It’s when a stock is bouncing between two prices, so we check the trend, buy when it’s at the low, and sell when it’s at the high.

Support and Resistance

Support: This is when the stock price stops going down. This is the time to buy as the stock price will go up.

Resistance: This is when the stock price stops going up. This is when we sell our stock.

If the price breaks resistance, that new level becomes the support.

Moving Averages

These are price charts that calculate the average price of a stock over a period of time like 50MA or 200MA. There are 2 types of Moving Averages including SMA and EMA.

SMA: These are the simple moving averages that give equal weight to every day in the average, and each day one day gets removed and the other day gets added. These are usually used for long-term investors.

EMA: These are exponential moving averages that do not give equal weight and give more weight to recent days. They are mostly used for mid-term investors and short-term traders.

Final Words

I hope you guys now know how to technically analyze a stock using several price charts. Always remember: only buy when a stock is below its actual price, and don’t completely rely on price charts. Technical analysis is a tool to help guide your decisions, but it should be combined with fundamental analysis for the best results.