How to Read Stock Charts? (2023)

Understanding how to read stock charts is one of the fundamental skills that every investor should possess to navigate the complex world of the financial market. Stock charts are instrumental in extracting valuable insights from a stock's historical price and pattern movement, helping investors make an informed trading decision. 

How to Read Stock Charts

When you see a stock chart for the first time, it might be chaotic to understand and navigate through lines, colors, and numbers. However, if you understand the basics of stock charts, it gets much easier to gain relevant information from them, which are mostly freely available on Google Finance and Yahoo Finance. 

In this article, I’ll take you through the basics of stock charts to their common types, core elements, patterns, and indicators, so that you can understand how to read stock charts and gather useful information for making informed trade decisions. 

What is a Stock Chart?

A stock chart is a graphical representation of the price of stocks - or other financial instruments - for a given period. It shows the current price, historical price movements, and trade volumes. 

Read: Stock Market Trading Strategies

The Y-axis of a stock chart measures prices, while the X-axis keeps track of time - from a minute to hours, days, weeks, months, and years. By properly analyzing and understanding stock charts, investors can identify the trends and patterns for the selected financial instruments to frame their winning stock trading strategy. 

The bottom area of a bar chart also shows the details about trading volume, measuring the number of shares sold and purchased in the stock market within a particular time. The stock trade volume shows the market demand for the selected stock. 

A proper stock chart analysis also helps investors decide on support and resistance levels and potential entry and exit points. 

Major Types of Stock Charts

1. Line Chart

A line Chart is one of the most basic and common types of stock charts. It connects the closing price of a stock over a given time frame, giving clear and concise information about the price trend of the selected stock. Though line charts are basic and only connect stock’s closing price, they miss providing detailed information about day trade price fluctuations. 

Read: Types of Financial Trading

2. Bar Chart

Bar charts represent the day trading range using vertical lines, while the high, low, opening, and closing prices are indicated by horizontal notches that typically extend to the right and left from the vertical links. Since bar charts include more information about price fluctuations, they provide detailed information compared to line charts. 

3. Candlestick Chart

A candlestick chart represents the opening and closing prices of stock for a given time using the body of candles. The candle’s wicks and shadows hint about the highs and lows of intraday trades, while the vertical lines extend from the top and bottom of the candle body. Candlestick charts also provide similar information to bar charts, including opening, closing, high, and low stock prices, to showcase the relationship between demand and supply of financial security. These charts are mostly used to predict the future price movement of the stocks. 

Suggested Posts

How to Make Money from Stock Market

Benefits of Public Provident Fund Investment

Reasons Why People Invest in Bonds

Post a Comment