Stock Trading: Practical Tips to Enhance Your Chart Analysis

Stock market trading is complex for beginner traders and investors, and even professional investment managers and experienced investors. Investors use various charts (line, bar, or candle) and other charting tools to analyze stock price history and predict prices based on recognized patterns and other factors. In this article, you’ll find practical tips, from setting up your charts to maximizing analysis and finding high-quality trading opportunities.

Stock Trading and Charts

Before you proceed, it is essential to note that not all stock traders and investors use charts when analyzing markets. Some investors simply buy stocks they believe would perform well at any time without reading or analyzing charts. Some prefer to invest in stocks by buying fixed amounts monthly, quarterly, or annually.

But for traders who buy and sell stocks via reliable trading platforms like tradingview, charts are indispensable in trading and investment. You’ll find charts make your trading process better. As trading principles remain the same for all financial markets, you can apply these tips to any asset, instrument, or stock.

Tip 1: Determine Your Objective

All technical analysis should help you find entries and exits, right? Yes. Your objectives, however, may not be the same. For example, you might want to look at the market structure before looking for areas of demand and supply. If you want to determine the market direction at any point, you may have to view your chart differently than if you’re looking for the volume of trades for a specific period.

You must determine your objective each time you open your stock charts. What do you want to see? Where? How? Answering these will help you to set up your charts in the best way that enhances your analysis. This is a straightforward part of your trading process that, if missed, could leave you gasping for air.

Tip 2: Setup Your Charts In the Right Way

Setting up your charts begins with choosing the right broker and trading platform. Why? Stock prices may be slightly different across brokers, and that spread is crucial when analyzing your trades. Find a broker that offers excellent charting and analytical tools and third-party integration with popular platforms such as Tradingview.

Consider these when setting up your trading environment:

1. Mind your colors:

Colors are important, from background to chart and indicators. Ensure you choose colors that are eye-friendly, easy to follow, and generally make your trading experience more accessible. Go for simple neutral colors for backgrounds, contrasting colors for up and down bars, and trackable colors for your indicators. If you need help with what to do, look for chart templates you prefer and simply adapt the settings to your trading screen. If you use multiple screens, consider using different colors to enhance the trackability of each screen.

2. Mind your fonts:

Fonts are also helpful for improving your analysis. Choose fonts that are legible at a glance, comfortable to follow, and font sizes that allow you to read data easily. Use the same font settings for all charts to enhance consistency and build uniformity. These go a long way in improving your analysis.

3. Use pertinent drawings:

Chart drawings, shapes, and items help mark out areas of interest on charts, but ensure you only use them when pertinent. Avoid adding too many shapes or drawing too many unnecessary lines that confuse you.

Tip 3: Simple is Better

One mistake you should not make is focusing on designing fancy chart environments rather than being practical. If, for example, you do not trade up to one or two stocks, you may only need up to two monitors at a time. Setting up more monitors may look great but could become a distraction at first. This is not to say using multiple monitors is terrible, but if you don’t need them yet, there’s no point complicating your process.

This also applies to technical indicators. You only need between 1 and 3 indicators per chart; having more indicators may increase disorder and distractions. You can use more indicators if you have more monitors, but each should serve a specific purpose. You should not use two indicators that perform the same function. For example, there is no reason to set two EMAs at 200. You could use two EMAs set at different periods, but not the same.

Finally, avoid what pro traders call “analysis paralysis.” This is when you keep analyzing potential trades but do not trade them. As a stock trader, you can only potentially make money when you take actual trades. You should execute trades once your analysis meets the conditions of your trading plan.

Tip 4: Trade What You See, Not What You Feel

Emotions are out of place when it comes to analyzing stock charts. As a trader, trading what you see instead of what you feel is your best bet to reach your trading goals. You could feel that a particular stock will go up, but the charts and volume books tell you that traders and investors are rapidly dumping the same stock as they have lost confidence based on the fear and greed index.

This is important, especially in ranging markets with no clear direction. Focus on what the charts relay, and do not trade outside your system.

Tip 5: Create Strategies

Every successful trader has strategies for dealing with unexpected changes in the market. This is crucial for analyzing stock charts and enhancing your analysis. Creating analytical strategies helps you recognize chart patterns easily. For instance, you can create a system that identifies chart patterns that lead to bullish or bearish moves. That way, you get an early lead on identifying market trends and potential moves.

Stock trading is putting your trading skills against other traders as you look for profitable trading opportunities in the charts. Although all traders have access to basic charting and analytical tools, applying the tips in this article will help you gain an edge over others. Ensure you keep your charts straightforward and legible and you have access to the tools you need via your trusted broker.

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