Using Charting to invest

When an upward trendline or channel has been established it could represent a buying opportunity, or a reason to hold on to your existing investments.

Any sign that this trend could be broken would then mean that an investor should stop purchasing look at their portfolio closely.

The longer a trend has continued the more likely that any break in the upward trend could lead to a difficult period for the share price.

Signs that a downward trend is emerging should prompt an investor to think about selling a holding.

Of course this is simpler said that done and various patterns can emerge. For example there could be a short term downward trend, but over the long term the trend is positive.

And to buy at the bottom or a market and sell at the top is always a trick that is difficult to pull off. But charting can provide you with a useful tool to help you.

An experienced chartist can identify more complicated patterns and trends such as curving trendlines and where a series of trends often follow each other.

A variation on normal charting is to use moving average figures can also - the average price of a stock over a specific number of days.

These are plotted on a chart next to the normal share price, and a changes in the upward or downward trend is identified when the share price moves through the moving average chart.

When a share's closing price moves below its moving average it could signal a declining market and vice-versa.

However, neither charting or moving averages are a fool proof way of predicting share price movement and require experience and skill to get right.

You can find out more about charting by consulting the reading list as the end of this guide.