History repeats itself – while that might not be written in stone when it comes to investments, knowing when and why the market moved might give you an edge and the confidence that you’re making a smart investment. Whether we’re talking about forex, securities or any other type on investment, everyone knows that the market can be unpredictable. All the technical elements can point to one direction until fundamental aspects make their way in and change the whole equation. Conversely, all fundamental elements point to one direction and yet the market does not want to move accordingly. While some techniques are more successful than others, there is no way to be 100% certain about a future move, which is why learning about the past and historical stock data could be the extra tool that you need in order to improve your predictions.
When is it time to check historical data?
The last thing you want to do is gamble on the stock market, especially when you have a wide range of tools at your disposal that can increase your chances of actually making a profit. Depending on the type of investor you are, you will want to check the market every day and pay attention to the news. Once you have an idea on which company you want to invest in, it’s time to check their history. Depending on how long they’ve been a public company, you might have data spanning decades or as little as a few months. When it comes to young stocks you might want to pay attention to the news and see how the company is doing, and you can judge how smart their business decisions are.
What should you check for?
When looking through a company’s historical stock data you want to see consistency and a positive trend. Check how the price acted in the past around certain areas. Chances are you will see areas of support and resistance and how the price reacted when hitting those areas. You can look at where the price is now, if there is a current trend in the way it is moving and how close it is to the areas of support and resistance. You can compare your findings to recent events surrounding a stock. For example: Has the company been in the news recently? If so, did they announce anything major that could determine you to think that there is a chance the price will break through the resistance?
Additionally, as you already know, it is important to understand the risks involved, which means setting up a stop loss is ideal. Find areas of support that you think will hold in case the price goes south. No one wants to lose on the stock market, but understanding that losing is an option and knowing when to cut your losses can make a huge difference. After you identified a good support area place a stop loss somewhat lower, so you don’t end up losing all you capital if the support doesn’t hold.
With the advent of the internet it is increasingly easier to find all the historical data you are looking for. Researching the price of a company you are interested in could be an important step. While history can’t predict the future of the market, it can’t hurt to be aware of how, when, and why things shifted. The more you educate yourself about the market and the whole investment process, the easier it will be to identify opportunities. Knowing what to look for on a chart and how to interpret price movements is crucial, and comes as a result of experience and constant learning.