Investing in stocks is a risky process. It can be very complicated as well, but there are some ways to make it easier and more successful. There are many different strategies that investors use to decide which stocks to buy, but the most popular one is called technical analysis. Technical analysis is when investors look at a company’s stock price history and try to find patterns or cycles in their stock price movements.
A stock trader’s goal is to buy low and sell high, which means they buy a stock when it is going down in price and then sell it when the price goes back up. The trader makes money on the difference between the two prices. This strategy is popular because of its simplicity.
Stocks run in trends: trending up and trending down. An investor must be vigilant when a stock trends up. Just as quickly as it trended up, it can turn around and down. The opposite is true. A stock trending down may soon go up. A stock that may not go up soon is a stock that went below its support.
Support is the previous low of a stock. When it reached the previous low, traders believed then the stock was a bargain at that price. Thus, other traders were willing to pay a higher price, making the stock trend up. At a later date, the stock may go down again. This shows that investors are no longer confident in the company’s near-term and perhaps, long-term future.
Source: AFSBAbove is an illustration. In the circle, the stock established a support. Investors should have been avoiding buying the stock when it went below that support. The stock price is on its way down and the bottom is not known.