Forex Trading

How To Read Stock Charts: Understanding Technical Analysis Investor’s Business Daily

how to read stock charts

Note there’s a 5 cent difference between the two — this is called the bid-ask spread. Generally, when there’s high trading activity with lots of willing buyers and sellers, spreads will be smaller. With less trading activity (such as during after-hours trading or trading in less popular stocks), bid-ask spreads may be wider. And when spreads are wider, it may be more difficult for an investor’s trade to be executed, or for the trade to go through at the price they wanted.

how to read stock charts

They can also tell you how the market as a whole perceives a particular stock and how that’s reflected in trading activity. Keep in mind that knowing how to read stock charts is not essential to building a portfolio and creating wealth over the long term. But it can help you make more informed decisions when it comes to buying and selling stocks. One of the most commonly used technical indicators is a moving average. The moving averages that are most frequently applied to daily stock charts are the 20-day, 50-day, and 200-day moving average. Generally speaking, as long as a shorter period moving average is above a longer period moving average, a stock is considered to be in an overall uptrend.

Ways Pros Use Trading Indicators: Proven by Data

If you’re getting serious about trading, you should apply today. To get an idea of the different chart styles, let’s look at KBLB again. Aside from changing the chart style — and the background on the line chart — this is the exact same chart. 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. We are an independent, advertising-supported comparison service.

  • Along the bottom of the main chart window, the daily trading volume is shown.
  • When you use Public, you’ll have access to a community of investors — both long-time, experienced investors and beginner investors.
  • When the Price breaks up through resistance, it moves higher; this could be a buy signal.
  • We believe everyone should be able to make financial decisions with confidence.
  • Whether due to a market correction, a problem with the stock itself, or a combination of both, a stock will sometimes go through a down period.
  • That’s an excellent “sell” signal because it shows that fund managers have gotten rid of shares.

Stocks charts are polarizing among investors focused on the long term. To some, using them is akin to reading the intestines of a goat to try to predict the future. For others, trend lines and support and resistance are very useful for picking entry points for a long-term investment or a short position. Finally, others use stock charts in their investing but in a truly contrarian way — by loading fundamental metrics onto the chart. Stock charts can vary in their construction from bar charts to candlestick charts to line charts to point and figure charts. Nearly all stock charts give you the option to switch between the various types of charts, as well as the ability to overlay various technical indicators on a chart.

What exactly is a stock chart, and how does it help you analyze stocks?

There are several rules that can help you better identify and confirm lows and highs in the chart. One of the most important things for this is to know how to identify cycles. In most cases, one complete cycle contains a minimum of 5 bars. Within the cycle, there might be any amount of highs and lows. For example, below, you can see a Candlestick Chart, where you can easily identify support & resistance levels. China’s economic recovery is key for global oil markets as post-pandemic trends drive demand, S&P Global said.

how to read stock charts

This filters out smaller price moves and lets us focus on trend quality. While the shape is different from a cup with handle, the core concept behind a double bottom is essentially the same. For best results, buy how to read stock charts stocks as close to the ideal buy point as possible. Think in terms of a «floor» of support and a «ceiling» of resistance. This is the most important piece of the puzzle, but it’s only one piece of the puzzle.

How to Read Stock Charts and Patterns: A Beginner’s Guide

If the handle begins forming too soon (i.e., in the lower half of the base), it could mean institutional buying is not yet as strong as it needs to be to push the stock higher. A handle is a shakeout of weaker holders — those not committed to holding the stock longer term. A sharp decline of more than 12%-15% in heavy volume could indicate a more serious sell-off, one that might prevent the stock from launching a successful move. The handle should be a mild pullback on relatively light volume. Additionally, the handle should form in upper half of the base.

Timeframes are always plotted along the chart’s bottom and can be anything from 1-minute per bar (intraday) to 1 year per bar. This chart shows a Daily chart, which means each bar equals 1 day. They were developed in the 1980s by the Chicago Board Of Trade Pitt Trader J. Peter Stiedlmayer. “A” represents the first 30 minutes of trading, and “B” represents the second 30 minutes of trading. A “0” is plotted if the Price moves down a whole price unit (for example, 50 cents). An “X” is marked in each box when the price changes direction and moves upwards.