In stocks and shares trading charting is a system or tool that is used by many investors and money managers. This system allows them to chart the progress of a stock or share over time and is often used to analyse the viability of investments and to predict which ones may be good to look at in the future.
As its name suggests charting involves setting up a form of chart that gives a pictorial view of a technical analysis to make it easier to make an assessment on its potential value. Charts here can be set up for both short-term and long-term periods depending on the investor’s preferences and what they need to know.
Charting a share usually involves showing its movement over a specific period of time. A weekly chart, for example, may show the highs and lows that a specific share reached each day over the period of a week. The financial data involved here may vary but can include high prices, low prices and closing prices.
This kind of charting is held to be extremely useful for many investors. It can show issues like gains, losses and volatility over a set period of time. This is used by many to help them assess where they should be investing and why. For many, this minimises their investment risk and helps them identify areas in which they should be investing (or not as the case may be).
Many analysts like to use this kind of historical behaviour to predict how a share may do in the future. Although some don’t subscribe to this model many believe that charting is a reliable way of showing how an investment may perform over time based on how it has performed in the past.
Much of the work done with charting is based on trends. An investor can use a chart to spot an upcoming trend or a historical one. So, for example, if a chart shows a steady decline in an investment over time then they may not be interested in investing in it. If it shows a steady increase or even sharp growth then they may be interested.
Charting may not work on its own and may need other investment skills to back it up but it can be a useful way of getting a snapshot of how an investment might perform in the future and whether it may be worth investing in.