Why Investors Often Have A Lot Of Faith In Charts

When you first become interested in stock market investing, you will quickly realize that there are lots of tools you can use to help you find winning investments. You can use level two price data, you can scan through companies’ financial records, and you can scrutinize price charts to help time your entry and exit points.

It is actually price charts that I want to discuss in this article because I think every share trader should at least know how you can analyze charts buying and selling stocks. What I like about live charts is that they are easy to find, and although you can pay for live streaming price charts, you can often get these charts for free.

For instance if you read this Zecco review, you will learn that live charts are freely available when you open an account with the company. Indeed this is generally the case with most online stockbrokers.

If you read all about the various different brokers, including this review of Trade King, you will observe that you do not have to get your charts from any other website. You can just look at the charts provided by your chosen broker, which is really convenient.

So are these price charts really that useful, and can they make a difference to your bottom line?

Well I should emphasise that you don’t have to use any charts at all. Warren Buffett, for instance, doesn’t spend his life scanning through price charts when making important investment decisions. He will be more interested in the long term prospects of various companies.

Of course he may glance at the chart to see how the share price has moved in recent times, and whether or not it is trading at low levels. However I can’t really see him paying too much attention to the various technical indicators, like quite a few stock market investors do.

I personally believe that technical analysis can be useful, but these indicators are more beneficial for short or medium term investors. For example if you are looking to bank profits in a few weeks or months, then the original purchase price is very important and you will almost certainly want to invest in stocks when they are trading at bargain levels as indicated by various technical indicators.

If you plan on holding stocks for many years, just like Warren Buffett, then the entry point is not massively important. As long as the company is increasing it’s profits and it’s dividend payouts each year, then the share price should continue trending upwards, so the price you bought the shares at is relatively unimportant.

So the point is that price charts are definitely beneficial for short term traders and investors because timing is absolutely essential. However if you are buying shares for years at a time, then you may only want to have a quick glance at the price charts before you enter into positions.
Making Money the Smart Way

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