Tips from the Worden brothers on how to read stock charts

Tips from the Worden brothers on how to read stock charts
Tips from the Worden brothers on how to read stock charts

With stocks gyrating like a Bee Gees hit song, the average investor needs more than quick reflexes to stay alive. Swift action also requires an ability to read the market and make intelligent guesses as to where stock prices will go.

But if it that was simple, more of us wouldn't be worried about not having enough for retirement. Before you buy or sell, here are five things to keep in mind, Peter and Chris Worden of Worden Brothers told WalletPop in a telephone interview:

What the charts tell you

Once considered by many on Wall Street as selling snake oil, reading stock charts is now widely accepted throughout the investment community as an integral part of analyzing stocks.

By graphically displaying a stock's price over years, it provides a window into what the company is worth now and at various parts of its history. It also shows what investors are willing to pay for a share of the company's stocks. Regardless of what the company's balance sheet or income statement looks like, the stock's value remains what someone is willing to pay to own it. So sometimes, especially during bear markets, you'll see lots of companies with good earnings but declining stock prices. Meanwhile, mediocre companies will have share prices that trade at levels that are unbelievably expensive. By understanding when irrational exuberance meets reality, an investor can do very well for himself.