Stock Charts: What Are They Good For?

by Carlos Portocarrero, WeSeed Writer

In case you haven’t heard, WeSeed added chart functionality pretty recently. Now users can take a look at what a company’s stock has done over any period of time they want.

Which is pretty sweet—but what does it mean? Can a stock chart really help you pick one stock over another?

Today we’re going to take a deeper look at what stock charts can and can’t tell you about the stocks behind them.

The Past

There’s one thing stock charts are really good at, and that’s telling you about what has happened in the past—no one’s going to argue with that. But other than that, stock charts are pretty limiting.

No matter what else you might’ve heard, they can’t really tell you anything about the future. Of course, not everyone feels that way. There’s a whole science called technical analysis devoted to analyzing the information in charts to make predictions about what a stock will do in the future.

Does it work? It depends on who you ask.

Technical Analysis

Technical analysis relies on charts to make decisions about potential stock buys. We don’t want to spend too much time on this since it’s totally not what WeSeed is about, but you should at least know that it exists. People that use technical analysis use charts and complicated tools like stochastic oscillators and MACD lines (sounds pretty exciting, doesn’t it?) to see who is buying a lot of the stock and how it’s affecting the price.

While it might work in the short term (and we’re talking within seconds), there isn’t a whole lot you can do with it as an everyday, regular investor. So it’s good to know, but it’s also good to know you don’t need to know it.

What About the Future?

This is what all of us would love to know, right? Well, sorry to burst your bubble, but no chart I’ve ever seen will ever show you what a stock is going to do in the future.

For that, you’ll need a time machine or Miss Cleo

What Good Are Charts Then?

Charts are great learning tools, and that’s why we have them on the site. After all, WeSeed is about figuring out what trends are hot and how they affect a company’s stock price. And since charts are a great way studying the past, they can really help us see how a stock has reacted to things that have already happened.

Studying the past can help teach us something that we can use in the future.

Let’s take some examples I used from the story on Palm’s iPhone Killer:

chart palm

chart apple

Does that mean the iPhone caused Apple’s (APPL) stock to shoot up? Maybe, but there were other factors in play. Has Palm’s (PALM) Pre buzz caused the price to creep up over the last few months? Sure, it’s influenced the price—but the phone isn’t even out yet. We’ll have to wait on that to make a final call.

Anyway, that’s one way to use charts to learn a thing or two about a company and how the market reacts to the things they do. It ain’t a time machine, but it’s still kind of cool to try to figure out why charts did what they did in the past.

Send Me Your Stocks

I’m curious to see what stocks you WeSeeders out there would like to see broken down like this. Leave a stock ticker in the comments and I’ll pick out a few to do these really rough analysis on for a future post.

Happy charting!

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