Learning to Read Stocks
- 1). Understand what you are looking at in the stock pages of an investment paper, such as "The Wall Street Journal," "Investor's Business Daily" or "Barron's." Reading stock tables can be a bit scary at first and each publication prints them a bit differently but most have a box explaining how to read them. Usually they are set up in eight columns which are the stock's high and low trade price over 52 weeks, the stock's dividend determined by the last quarterly or last semiannual payout, yield, price earnings ratio, volume percentage change or the stocks percentage above or below a 65-day volume average, the stock's closing price and the dollar change for the previous day.
- 2). Review key statistics. There are many places online to look up information on an individual stock such as Yahoo! Finance which gives you valuation measures, financial highlights and trading information on a stock's key statistics page. There are dozens of categories within some of those sections but at first learn a few important things to pick out from the bunch. For example many investors will say the ROE (Return on Equity) should be above 15 percent for them to even consider investing in a stock. Take a look at the company's total cash compared to their total debt and what percent is held by institutions (the big guys) and what percent is held by insiders or people part of the company itself. Once you compile a handful of important elements and what they mean then add another handful until you can successfully compare stocks.
- 3). Learn how to read stock charts. This is daunting territory for most but if you learn to read charts you will have knowledge that most average investors haven't taken the time to understand. Basic chart forms come in bar charts, line charts and candlestick charts. Reading charts enables an investor to read a stock in a whole new way and to visually see patterns which may be recurring or indicative of the stocks next big move. Charts also enable an investor to get a better idea of how volume is driving a particular stock or company. Volume is the amount of a stock that is traded during a day, week or other time period and is a good indicator of how many people are interested in it.
- 4). Read reports, articles and books to learn from the master investors, such as William O'Neil, Benjamin Graham, Peter Lynch and Warren Buffet. These guys didn't get where they are by luck, they have put in the time to study how the market flows and have strategies that work.
- 5). Practice reading stocks and look something up if you don't know what it means. This is the only way to learn it thoroughly and to get better at it. Review stocks in investment papers and online and keep tabs on just a few for starters to practice tracking stocks over several months. Once you get the hang of reading a few stocks it becomes easier to handle reading several at a time.
Source...