You can be good at interpreting charts if you learn to recognize a handful of basic, reliable patterns. One objective of chart reading is to spot which way a stock is headed. Once a trend is established—whether it's moving up or down—a stock is more likely to stay in that trend than to reverse. As stock pros like to say, "The trend is your friend." Not that trend changes never happen. They do, and chart analysis will help you recognize and capitalize on these situations more quickly.

Charts illustrate the price and volume movements of a stock, reflecting demand for it. They are especially helpful in pinpointing the exact time to get into a stock—or when to get out. Wall Street lives by the phrase "timing is everything." (Later, you'll learn about the pivot point, which is the exact moment when a stock begins a major upward move.) The use of charts can be the first or the final step in your stock selection process.

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