3 Stock Chart Tips to Become a Better Investor

Halal Investment Series Part 4

A stock chart is a graph that shows the price of a stock over a specific time period. By understanding the fundamentals, you can gather a wealth of information about a stock’s past, present, and future performance. More advanced stock charts will display additional data.

There are many excellent free resources on the internet, including Google Finance or Yahoo Finance. Both of these websites allow you to gain general yet insightful information about a specific company and its stock price over time. At Musaffa, we also provide the same free resources, but our platform is catered more towards Muslim investors. We don’t just give you information about the company; we also give you a halal compliance score based on the research done by shariah scholars around the world.

There are multiple variations of stock charts, including bar charts, line charts, and candlestick charts. This article will share 3 essential tips on reading line stock charts on the Musaffa platform.

Tip 1: Choosing a Proper Date Range

Let’s start by examining a popular stock: Apple (AAPL)

At the bottom of the stock chart, you can select a time frame in which you can examine the price movements. In general, the longer the time frame, the more significant the trend.

Let’s assume that you are thinking about purchasing Apple as a long-term investment. In that case, Apple’s one-year growth trend would probably be more important to you than its month-to-month decline. However, it should be noted that your trading strategy will have a significant impact on which date ranges are most important. For example, if you are a swing trader, the 1-month or even 5-day charts may be far more critical to you than the 1-year chart. And if you’re a day trader, you might only be interested in how a stock performs intraday.

Tip 2: Look For Short-Term and Long-Term Trends

Suppose you are planning on long-term investing in a stock. In that case, it may be helpful looking at its price movements over a more extended period of time on the stock chart. As a short-term trade, you may want to look at the price movements from 1 day to 1 month. Short-term traders also do other technical analyses on charts to find patterns of movements.

AAPL shows a solid upward trend, as shown below. This correlation can be a good indicator for most investors who want to invest long-term into AAPL. Looking at short-term trends can also help you predict specific apparent patterns. If a stock is at an all-time high, there may be a chance that investors want to cash in, signalling a drop in the price soon. Furthermore, you can also look at the chart and compare it to your assumptions of where the price should be and make an educated guess on when it is the right time to buy.

Tip 3: Analyze How the Stock Reacts to Different Events

Look for temporary dips and rises in stock price and take note of the dates. This information can lead you to find how the stock has reacted to certain events in the past.

For example,

As the number of outstanding shares increases, prices will always fall immediately after a stock split. Dividends, on the other hand, can have a variety of effects on the price of a stock. A dividend declaration, for example, can cause prices to rise. However, prices may fall between the ex-date of a dividend and its payout date because investors who buy the stock during that time know they will not be eligible to receive it.

Moreover, certain political decisions, economic factors, and news can also affect the stock price. As a savvy investor, it is wise to note these factors and incorporate these details into your decision-making process.

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