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Trading stocks is not something that every one of us is capable of doing without losing money at first. Just like anything else, it requires experience. The experience of stock trading is what will make you a better trader and nothing else. Not one "how to trade stocks" guide will make you an expert in the field of trading. It will not make you an expert and it will not bring in millions of dollars to your trading account.
With that said, however, by finding this article you are most likely in the losing side, and are looking for ways to improve your trading results. I have traded stocks for a long time, and still do.
Here is the simple fact. Most people rely on the information published by the company itself. They fail to understand that the company management and executives are paid, or at least supposed to be paid and rewarded based on the way company's stock performs. Most company press releases, earnings reports are bogus. That is right, I said bogus. Have you ever heard of Enron, and WorldCom, formerly known as MCI, and MCI WorldCom? Well they are just the ones that got caught. A LOT of companies "restate" their earnings on regular basis. The term "restating earnings" is just a fancy term for saying "We lied on our reports previously, so our stock value does not depreciate, and now we are giving you the 'real' data, which is subject to further changes in the future, as we see it fit."
This may sound shocking to you, especially with the laws passed by Congress after the Enron fiasco, but the truth is that it happens every day and it is perfectly legal; at least it seems that way, because companies who restate their earnings don't seem to get in trouble.
So who, or what does one rely on for good and solid information? The answer is simple. You have to learn how to read stock charts. By understanding the charts, and patterns, you will be well on your way to getting sound advice by someone who cares about you and your money the most; YOU!
I've heard the saying "Reading a chart is like playing with an Ouija board." I just laugh at that - honestly. See, here is the issue. A stock chart is simply a graphical representation of the action of that stock over a defined period of time. We know that stocks move based on fear and greed. These two factors, and understanding human psychology of predictability (humans tend to repeat their mistakes and not learn from them), we can understand a chart. Here is how it REALLY works...
When the stock is going up, everyone jumps in the bandwagon, and buys that stock, fueling the fire, so to speak. Something had happened that ignited this greedy buying. We can also take the opposite approach; when the stock starts to go down, everyone wants out - the fear factor. Price action combined with volume increases during these stages form patterns, which with a bit of experience, can become very easy to spot. Understanding these patterns and studying the action just before these erratic moves can alert you to get in just before greedy buyers jump in, and dump the stock - or even sell it short - before the panic selling kicks in.
Knowing how to read a stock chart though, is a combination of both science, and art. I've heard chart gurus say "A good defined chart pattern is like one of DaVinci's masterpieces. It can bring you in a lot of money." Well, I wouldn't go that far, but there are really two options here. Trust the thieves and cheats at the company's board of directors, whose jobs really are dependent on stock's performance, or at least it should be that way, or trust something that tells you simply what has happened in the past, which will allow you to make decisions for the future. Charts do not lie, people do.
Mentor is the founder and publisher of http://www.roguereason.com/
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