How to Understand Stock Quotes
Stock quotes come in different forms depending on the information source. What is universal is the bid side of the transaction, the offered side of the transaction and the last trade or last price the security traded. Much can be learned about the strength of a stock when you learn to probe beneath these simple numbers.
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Instructions
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Trade stocks with knowledge of current prices. Stock quotes are usually presented with a bid, an offer and a last. The bid side refers to the best price someone will pay to a seller of stock. The offer or offered side is the best price someone will be willing to sell stock at that they own. The last is the price of the last trade in the stock.
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Learn the volume attached to every price level of a stock. In Step 1 the volume of the bid, asked, and last trade is not shown. Usually it is safe to assume that those prices are for 100 shares minimum. Specialists and traders who have paid special fees to the exchange for Level 2 quote machines know how many sellers and buyers there are for stock and in what volume they are willing to trade. This is very important to large traders of stock. You cannot rely on just price. There may be a little or a lot of stock for sale at higher prices. Large supply or demand indicates the future price of the stock.
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Beware of stock machines that tell you how much a stock is up or down on the day. Stock price changes are based on either last night's close on the same exchange or the first trade of the current day. Trading in stock after hours will show enormous swings in stock prices because there are few traders. This is called "thin" trading in stock and a few hundred shares of stock can move the stock several points in value.
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Understand closing stock quotes. These figures are used for charting and technical analysis. Since they represent the price where investors may or may not want overnight risk, they are considered stronger than during the day quotes. The important numbers are the open, high, low and close. Together they constitute the range. Stocks closing near the lows or highs are considered weak or strong. Stocks closing at the very high is probably near a short-term price climax. Stocks closing at their absolute lows followed by lower prices the next day are considered to be following their downward trend.
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Study the tightness of the closing quotes. Narrow-range trading indicates a decisive move in either direction is coming. Wide-ranging stock quotes indicate that a stock may be ready to change trend. When a stock that has been in either an up or down trend closes at the same price where it opened it is a strong sign that the trend is reversed.
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Tips & Warnings
Understand stock quote definitions and use them for turning points in day trading and intermediate trading patterns.
Look at the larger trend and then analyze stock quotes for future trade expectations.
