To the new investor, stock charts often appear to be the meanderings of an out-of-control four-year old with some crayons. Stock market basics involve learning how to read these performance snapshots as a component of your stock research.

Beginner stock market investors should relax and understand the “bottom line” for all stock charts: Should you risk your own money by purchasing or selling this stock? To keep this process simple, concentrate on only three major issues.

1. Stock stages: The four common stock stages are consolidation, uptrend, another consolidation, and downtrend. Learn to identify a stock’s current stage to learn if trading (buying or selling) is warranted.
2. Stock trends: Determine the current trend (up or down) and project where in the cycle the stock resides. A “breakout” indicates the start or early stage of a trend. If the trend is up—increasing from lower left corner toward upper right corner of the chart—this indicates a good time to buy. When the stock reaches the apparent end of an uptrend, this may encourage you to consider selling the security.
3. Stock waves: Wave theory states that stocks experience five waves during a normal uptrend. Wave one is the uptrend right after breakout, while wave two is the first “pullback” (short flattening or downtrend). Wave three is an uptrend and wave four is another brief pullback. The final wave signifies the end of the current uptrend and projects a future consolidation.

Your online stock market trading decisions can disregard the many other notations. How to read stock charts effectively involves becoming comfortable with these three components. You can quickly analyze a stock in less than 10 seconds using this method.