Pt 2

Newbie's Guide to the Stock Market Pt. 2

Part Two: How to use Your Trading Station, and Chart Basics

Trading Station Basics 
#Please note that your trading station might be different but the information should be more or less similar

Example of a Trading Station: Click to Enlarge

Boxes have been labelled and I shall explain carefully what does each of them mean.

1: Code- Represents the Company Code. Each company has a unique number that represents it and is given on the day it successfully lists on the stock exchange. For future reference, one simply has to type the code on the search box and the company will come up on the search.

2: Stock Name- Represents the "shortened name" of the listed entity/company. One can also type in this name on the search box and the company will come up on the search.

3: Last Price- Represents the last price the company stock was traded at. Green or Red coloured numbers can simply mean that the "last price" someone bought or sold was down from previous day's "closing price"

4: Change- Represents the total increase/decrease in price of the stock, from the previous day's "closing price". Green is always preferable if you are buying the stock and hoping for it to go up!

5: Volume- Represents the amount of shares being traded. It combines both buying and selling volume and provides an indicator whether or not the stock is "active". An active counter (stock) attracts more interest, and could mean that the stock is ready to jump in price or otherwise.

6: High/Low- Represents the Highest Price for the Day and Lowest Price for the Day (quoted to the latest second)

7 and 8: Buy and Sell Queue- Represents the prices that are being offered by Buyers and Sellers for the particular counter (stock). The yellow numbers represents number of lots (1 lot = 100 shares), and the other represents the price.

Example
For obvious reasons, you are always welcomed to buy at the quoted price of 8.5 cents, but you can queue at 8 cents. If you are a seller you could queue at 8.5 cents to sell, or sell immediately at 8 cents to the existing ready buyers. 

9: Buy/Sell entry order- This is where you can toggle between buy/sell transactions. You can set your quantity of shares, as well as price. Upon entry and execution, your order will enter the queue, or if you enter to buy at available prices/ sell at available prices your order will be processed immediately. Always use Boxes 7 and 8 as your reference point.


Chart Basics

Depending on your brokerage system, some allow you to look at daily-updated charts. For my brokerage system, I am allowed to use either Chrome, or IE to trade. Signing into IE, allows me to view charts. Below is an example:

KPJ Healthcare Berhad: Click to Enlarge

As you can easily see, the Red Line is labelled as the support line, while the Green Line is labelled as the resistance line. What it basically means is that the stock will be expected to trade within the range of the two lines within a conceivable period of time. 

In scenario 1,

When the graph breaks the Green Line, it means that the stock is heading for a new high. If you are in the stock, you should be very happy. In any case, if the graph breaks the Green Line and falls back below the green line, you should look to sell. Usually it means that the uptrend has been broken, since the stock price cannot hold itself above the Green Line (Resistance Line).

In scenario 2,

When the graph breaks the Red Line, it means that the stock is heading down for a new low. If you are in the stock, you should by now be very worried. In any case, you should sell your stock. Don't sell if it only touches the line. Only sell upon "breaking" the line. 

The yellow bars (In the Chart) indicate the trading volume. One can easily deduce that when the stock price heads up the volume also increases, and when the stock price heads down, the volume also increases. "Volume" serves as a good indicator to tell you that a period of big price movement is coming. 

As this is only charting basics, I personally feel that my discussion thus far should be more than sufficient. One should try to buy their stock following the three rules I'm about to mention:

1. When the price touches the red line OR

2. When the price touches the red line, and have been trading that range for some time. (some time can mean days, or weeks). It is totally your judgment call.
3. When the price breaks through the green line, within the first or second trading day, one should try and enter. 

Of course, be aware that you should let go of your shares, if it breaks the Red Line in a significant manner.
If you bought your shares after it broke through the green line, then you should also watch out and be ready to sell if it falls back down below the green line in a significant manner. 

Note: Since it is almost quite seldom to sometimes enter at an absolute lowest price of the company's trading history, one should chart his/her line for the latest 12 to 24 months period. Be reminded that a cheap stock can't necessarily mean that it is a buying opportunity. As I will explain in the next part, you will soon find out more about the importance of fundamental analysis.