In the stock market, for many years there were two basic methods that investors and traders used to study and buy or sell stocks. The first method readily available was the "ticker tape". In the early 1900s, ticker machines could convey the price of the stock as the daily trading proceeded minute-by-minute and second-by-second. This provided trading in almost "real time".
The second method that investors used was, and still is, studying the financial activity of particular companies and industries. This method is commonly known as "fundamental" analysis. As important accounting standards came into play, investors could plot and analyze financial trends in sales, earnings, price-to-earnings ratios, balance sheet activity such as cash in bank, debt and capital activity.
The Internet, Stock Charts and "Cooking the Books":
More recently, and now certainly with the advent of the Internet, stock investors and traders are able to capture a visual picture of the price of a stock over time. Trend analysis and studying stock price channels became more popular and powerful upon which to make wise investment decisions. It's been said that "the price doesn't lie." This truism became more fully appreciated after investors became aware that manipulation and outright lying when it comes to financial reporting were not just potential problems. They were realities.
"Cooking the books", the common term for financial misrepresentation, has brutally affected many investors in recent years. Many have lost their entire retirement savings. Others simply have lost their confidence concerning where to place their "nest egg."
As a consequence, many investors and traders have turned to stock chart analysis. There still exist possibilities for certain holders of financial information to try and manipulate stock prices. However, stock chart analysis does seem to offer a good alternative investment strategy despite these lingering potential problems of stock price manipulation.
Studying stock charts can be combined with other strategies using other technical indicators such as stochastics. Thus, technical analysis is another aspect of using charts and often can be quite complex.
Nevertheless, one way to avoid having to rely upon financial reports is to study stock charts. But, of course, some investors and traders use both methods: fundamental and stock chart analysis.
Another Case for Studying Stock Charts:
There is another reason for analyzing stock charts other than relying on fundamental activity. Many investors are not "in to" crunching numbers. Many people learn better visually. Learning to read stock charts offers these investors and traders a method to not only do historical analysis but also to try a discern patterns and project trends into the future.
Stock Charts as a Timing Tool:
Whether you are more inclined to crunch the numbers or study a stock chart you want to keep this in mind. Fundamental analysis will often reveal "which" potential stock or stocks to invest in; and stock chart analysis will often show you "when" to invest in these stocks.
Timing your investment purchase or sale is extremely important. It is possible to invest in a good stock but at the wrong time. Stock chart analysis will often reveal when to get in and when to get out. Or this said in another way, you have to know when to hold 'em and when to fold 'em to protect and grow your investment portfolio.
