Reading Charts with Live Data
The beauty about today's technology is that we have at out finger tips the same information stock brokers have, so why not take advantage of this great opportunity.
We can only tell that back in the days, you had to chart your own graphs by hand, and on top of this you had to calculate your own moving averages... very painful indeed.
The whole purpose of the market depth is to show us the number of buyers and sellers at a particular price. It also displays the number of shares being purchased. All these happens via SEATS (Stock Exchange Automatic Trading System). This is for the Australian market other world markets have different names for their automatic trading systems.
If you wish to know more about SEATS click here
Having access to the market is a real advantage, you don't have to wait for the prices to be printing on the newspaper the next day to make a quick decision. Let's break down the above information and give you an explanation of what it all means.
Depending on the trading system you are using you might see different column headers but most of trading software try to keep it all standard and don't vary that much.
Last trade: This represents the last trading price. A buyer and a seller bought/sold at that price.
Price change: This tells how much the price has changed from the previous day close.
Percentage change: This is the price change shown as a percentage from previous day close.
Volume: As discussed in previous chapters, this shows the total number of shares being transacted for the day. If the volume is above normal for the particular stock check for other price patterns there might be an opportunity for a good trade.
Trades: How many trades have been placed so far during the day.
Open: This is the opening price for the day.
High: This represents the hightest price of a transaction for the stock during the day.
Previous Close: This tells you the closing price of the stock for the previous day. Always look at the previous closing price with the today's opening price. Depending on market volatility you might notice a price gap. How to trade gaps will be covered in the advanced section.
Low: This is the lowest price being recorded for the day. The more you practice reading the market depth you get a good understanding of the stock behavior.
Bid: Buyers bidding price.
Ask: Sellers asking price.
Now let's teach you how to read the market depth.
If you have subscribed to a market data provider this information moves by the second. If the stock is volatile (moving faster than normal) the market depth can move faster than you can imagine. Remember that you are not the only one in the markets there huge financial institution and thousands of private investors looking at the same stock too.
The red circle on the left is the buyers/bidders side. The first column "Number" shows you the number of buyers, in the above example there are two. The second column "Quantity" is the number of shares willing to buy. The third column "Price" is the price buyers are prepared to pay.
The circle on the right is the seller’s side. The first column "Number" shows you the number of sellers, in the above example there is only one seller. The second column "Quantity" is the number of shares for sale. The third column "Price" is the price sellers are prepared to sell.
It is a true experience watching the market depth move. This is just an introduction to reading the market depth. In more advanced chapters we show you how to really the market depth for day trading and how to spot support and resistance.