One Stock Trading Tip for Beginners

How to Trade Stocks Online

Lots of beginners to stock trading and the stock market feel that there is something basic they need to know to ensure they make the right decisions. Well, apart from the obvious answers like use your common sense, don't believe snake oil salesmen, a mine owner is a liar standing next to a hole in the ground etc... there is one basic thing you can do for yourself. Learn how to understand basic stock charts signals. For example one basic signal if you intend being a swing trader not a long-term buy and hold investor is "don't buy a stock if the 5 day moving average is pointing down". If you don't understand what that means then you really need to find out. 

The moving average is just the average of a stock price over a given period of time e.g. 5 days and it moves i.e. each new day is added to the end of the sequence and the first day is taken off the front. So if the price of a stock over five days is 10 - 11 - 12 - 13 - 14 then the 5-day average is 12  so a 12 is plotted on the graph/chart. If the next day the price moves up to 15 then the 5 day  average is now 11 - 12 - 13 -14 -15 divided by 5 i.e.  13

Here is the chart for Microsoft showing the 5-day moving average (in green) and the 200-day moving average (in blue)

at the moment the 5-day moving average is pointing up (but as this chart updates itself automatically it may not be pointing up when you look at it) and the stock price is above the 200 day moving average.

So it seems a fair enough short-term trade based on the moving averages. Another basic point is never buy a stock that is below its 200-day moving average, wait until it gets back above it.

There is a lot more to charts and online stock investing than this of course, but it is important to realize that the stock market professional traders use charts and if the charts seem to them to be saying it is time to sell then it would be foolish for you to start buying, there would be too many sellers selling and this would force the price down. It is therefore doubly important as a beginner to the stock market to know when the professionals are likely to be buying and selling, which means understanding a minimum about stock market charts.

This seems to me to be the one basic point that all stock traders need to understand i.e. that it may all seem random but there may be some method to the madness and if you are serious about making a living from online stock trading then you need to get to grips with the basics of stock market charts.

See these related posts for more information on charts - Stock Charts for Dummies or Stock Charting for Beginners

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