Analysts and experts are constantly trying to decipher fluctuating stock prices and future price movements. Knowing the answer is not as crucial to successful trading as you might think. The only aspect that you should most be concerned with is knowing when to buy and when to sell.
In simple words, a stock’s price goes up when the number of buy orders exceed the number of sell orders. In such cases, the buying pressure is more than the selling pressure. This is a ‘buy’ signal, meaning you should purchase that stock.
A stock’s price goes down when there are more sell orders than buy orders for that stock. The selling pressure is higher than the buying pressure, which means that the stock is on a ‘sell’ signal.
Understanding the buying and selling pressure of a stock can help you asses the price movement of that stock. Another way to observe the daily price movement is through a price chart. They can visually help you determine ‘buy’ or ‘sell’ signals and whether you should take a bullish or bearish option trade.
Price Charts and Price Trends
Daily price charts can allow you to observe the price trend of a stock and measure it using ‘moving average lines.’ In the chart below, you can see a daily price movement for Apple stock over 30 days.
The time period is denoted by the horizontal axis, while the price of the stock is shown via the vertical axis. The vertical bars show the daily price movement, along with the stock’s closing price which is shown by the horizontal bar.
Using this technique along with different indicators can help you identify whether you need to buy call options to put options. This is one of the most important points to successful trading.