Technical Stock-Picking: How to Trade Off of a Stock Chart

Savvy technical investors, seeing a move down on strong volume, would have probably sold before the big down move. A price move on light volume, on the other hand, is usually interpreted as a "lack of conviction," which means that the trend might not continue.

Time frame. When reading stock charts, time frame is also important. A chart can be drawn for a period as long 10 years or more, or as short as a few hours in the trading day -- the so-called intraday chart. The longer the trend endures, especially if confirmed by heavy volume, the more likely it is to be sustained in the future. Google's move from the mid-$400s to over $740 over the year was certainly impressive. Has its momentum run out of steam? To find out, look at a chart over a shorter time period. Here's a recent one-month bar chart of Google:

Google 1-Month Chart

Click here for larger image.

Source: BigCharts

The one-month bar chart (the height of the bar is the difference between the highest and lowest price of the day, the left tick indicates the open price , and the right tick indicates the closing price ) seems to confirm the upward momentum of the one-year chart. Google's price moved about from around $630 to $730, during the month, with strong buying volume on the price dips. So look at a chart over different time frames. A great indicator of strength is if the stock keeps making higher highs no matter what time frame you choose.

Even fundamental -based investors should look at a stock's chart, because the chart will show when buying opportunities present themselves. In Google's case, the stock seems to bounce back consistently from these temporary lows.

Some daytraders use the intraday chart to trade in and out of a stock. For example, here's an intraday candlestick chart of Google for Dec. 18, 2007: