How to Read Stock Charts

how to read stock charts

Many technicians believe closing price is the only point that matters. This is an estimate of what the stock’s price could be in one year. And as anyone who’s been annoyed with their local meteorologist knows, forecasts can be wrong.

Declining prices and increasing volume, for example, could signal a wave of panic-selling. Declining prices and lower volume, on other hand, might suggest that investors are holding onto shares in expectation of a price rebound. 200 day moving average The 200 DMA is a line that is formed by taking the average closing price of a stock over the last trailing 200 trading days. This powerful line is not often seen coming in contact with market prices due to its long term calculation. But, when it does come into the picture the market almost always reacts to it as either support and resistance. The first step in reading a stock chart is familiarizing yourself with each of the terms mentioned above.

How to read stock chart patterns?

Getting started with investing can seem intimidating, or for some, downright terrifying. But you’ll need to know how to read and understand stock charts if you want to make informed decisions when buying individual stocks. Earnings season can be difficult to navigate for investors that do not understand the game. The examples below are not your normal “last week” type stocks. I went all the way back to 2006 to find great examples of setups that work time and time again. Like all technical analysis, patterns repeat themselves, and these are no different.

When a stock is overbought, or overheating, it means so many new investors have bought it that the stock price has spiked to an unsustainable level and will likely drop soon. Keep in mind, I’m not looking for more students just to have more students. I’m looking for students who are willing to put in the time and effort. Some examples include moving averages, Fibonacci retracements, and the Ichimoku cloud. I’ll include the moving average and relative strength index later in this post. You should know how to read a stock table and visualize the basic chart.

Hong Kong stocks lead gains in Asia; Australia and China data closely watched this week

When you’re deciding to buy or sell, it’s important to go deeper and see if the stock price is justified by the earnings of the company. Sometimes a higher P/E ratio can be an indicator that the market is overvaluing the stock. Depending on how long the wick is and the shape of the candle, investors try to predict future price movement of a stock with various technical analysis strategies. Some investors think bar charts uncover more insights about stock market sentiment. Points are added to the chart in real time to show trading at the end of a certain period — years, months, days, or even hours.

  • An author, teacher & investing expert with nearly two decades experience as an investment portfolio manager and chief financial officer for a real estate holding company.
  • Stock charts can vary in their construction from bar charts to candlestick charts to line charts to point and figure charts.
  • The information provided by, Inc. is not investment advice.
  • But the best stocks will also typically offer additional buying opportunities as they make their climbs.
  • Cups, double bottoms and flat bases are the main chart patterns that launch big runs.
  • Now let’s dive into the different pieces and parts of the stock chart so you can begin to read one like a pro.
  • This means a change in demand and a potential change in the direction of the stock price.

The cup with handle — also called a cup-shaped base or simply a cup — is a variation on the cup-with-handle chart pattern. As the name implies, it’s essentially how to read stock charts the same, except it doesn’t have a handle. All the attributes (including heavy volume on the breakout), except for the buy point, are identical.

Chart Types and Styles

Price charts visualize the trading activity that takes place during a single trading period (whether it’s five minutes, 30 minutes, one day, and so on). Generally speaking, each period consists of several data points, including the opening, high, low, and/or closing prices. When reading stock charts, traders typically use one or more of the three types—line, bar, and candlestick. If you are a short-term investor who wants to make profits in the short term, you will be looking for the highs and lows on the chart that shows price movements in a short period. On the other hand, as a long-term investor, you might be looking at the chart in a bigger picture and you are more likely to use longer time frames. Identifying these levels is one of the best ways to read stock charts and use this information for your positions.

how to read stock charts

You can also measure how heavily stocks are being bought or sold with stock ratings and features, such as the Accumulation/Distribution Rating and the up/down volume ratio. But stock charts provide the most timely way to gauge buying demand — or a lack thereof — by mutual funds and other large investors that drive the market. By the end of this section, you’ll know the basics of how to use stock charts.

Reading green and red charts is possibly the easiest thing to do with charts. A very simple rule is that green boxes or bodies in the chart show that the price is increasing, and red shows that the price is decreasing. In most cases, you can set the colors according to your preferences and change the way the chart looks.