How to Read Abbreviations on Stock Charts

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When you're looking at the stock chart and notice that there are letter combinations that you don't understand, you need to learn to read the abbreviations on the stock chart. The abbreviations make it easier to give more information on one chart and are a wealth of knowledge. Traditional charts contain specific abbreviations like P/E, EPS, market cap and div & yield. Understanding these abbreviations helps you make better decisions on which stocks to hold and which ones to sell.

  • Know the stock symbol. Many of the stock symbols are abbreviations of the company name or their initials, like JPM for JP Morgan. If you're interested in the stock, the easiest way to find the stock symbol is to use a website like Yahoo Finance to see what the symbol is. Not all symbols are abbreviations of the company name. SUFB is First Bankshares, Inc. and bears no resemblance to its name.

  • Check the P/E. The abbreviation is price/earnings ratio. This is the relationship of the earnings to the price of the stock. If the number is high, that means that the company may be overpriced. If you're looking for a solid company, the smaller the P/E number is, the better.

  • Understand that market cap is short for market capitalization. This is the a measurement of its size. In order to find the market cap, you multiply the number of outstanding shares times the price. You can use a moving average to calculate it also. The moving average simply takes several days of movement and divides it by the number of days to find an average. As each day passes, one day drops off and they add the new one to calculate the average.

  • Go for the GAAP. The GAAP means generally accepted accounting principals. These are standard ways of accounting. If a company doesn't use these, let the buyer beware, they may be hiding something in the numbers.

  • Estimate the EPS and you'll be estimating the earnings per share of the company. Stock charts often show the EPS because they find it easier to use than P/E. You can use this to find whether a stock is overpriced or use it as information to decide to buy or sell. Here, the bigger the number, the better it is.

  • Find the div & yield and learn to understand this abbreviation on stock charts. If you're buying a stock to use the money as income, you'll want the highest yield possible. The div stands for dividend. Once you find out how much the dividend was, you can calculate your yield or the percentage of return you'll get by investing in the stock. If the stock is $100 and the dividend is $4 then the yield is 4 percent. If you're comparing it to other instruments like CDs, you have an apple to apples comparison. This doesn't include any appreciation or decline in the stock price.

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