Somewhere and sometime within our lives, we all have heard of the word ‘stocks’ and have seen the economic indicators during a section of the daily news on television.
We bet you’ve asked yourself how anyone even understands those symbols and wonder if one day you’ll be able to understand what the symbols mean. Let us tell you that you are not alone.
If you’re now curious to know what and how they work, congratulations! You are one step further in your financial literacy journey.
It takes a lot of learning and research to fully understand the information provided on economic/stock indicators and graphs. Here are some basic things that you need to understand before mastering the knowledge of financial stocks.
Of course, you’d still need a book in order to fully understand the basics and signs of a stock chart. One of them that I could recommend is the “The Economist: Guide to Economic Indicators; Making Sense of Economics” by Richard Stutely.
Within these chapters, it will provide you some clarity as to how to maneuver the symbols and the graphs within the chart. With that, let’s proceed to the real deal.
Trend lines and cycles
The lines that we mainly see on the chart is called the trend line. As it is a guide more than an indicator, keep in mind that it is only to see what’s going on. News come and go but when the line takes a dip, it is time to investigate.
Trends are the long term rate of an economic expansion. While the straight line is recognized as a trend, the line of uncertainty is called a cycle. This reflects the short term fluctuations around the trend.
These are also referred to as growths when it is above trend or a period when the economy contracts or goes down below the trend line. This with other variables such as a cycle comes in pretty handy which also contributes to stock falling.
Support and resistance
As stated, the dips from the trend line are called support and resistance. Support is where one unlikely drops and whereas resistance unlikely goes up. However, these are subjective and are open for interpretation depending on their investment perspectives and their knowledge.
Dividends and stock splits
A dividend is a portion of a company’s earnings which has been given to its shareholders. When or if you own it, you will get a small profit out of it. Stock splits, as the name suggests, splits the existing shares of a stock into various new shares to boost the stock’s liquidity.
The number of shares, increase by a certain split ratio (2: 1 or 3: 1), in which the stockholder holds those shares respectively for every share held earlier.
Historic Trading Volumes
Beneath the trend line, you’ll see another set of small, vertical lines. These are the volumes of the stock it has traded. These are major indicators for a company dictating whether it is good or bad. When these increase, the prices of the stock changes quickly. Again, remember, these are only indicators so don’t be alarmed by the drop or be certain by the rise from it.
As much as it is daunting to try and understand the dynamics of stock exchange, it can also be an interesting topic to learn and understand. This will also benefit you throughout your lifetime, especially during these times of uncertainty. Also, don’t rush and take your time, as learning these takes a lot of time, patience and guidance in order for you to fully understand the basics of stock exchange.
Read more: Top 4 ways to Predict Market Movements