How to Read Stock Charts: What Beginners Should Know
Stock charts are a must have for any serious investor. They provide valuable information that can be used to make wise decisions. However, they also come with their own unique set of rules and language which can make them difficult to understand at first.
In this article, we will break down the components of stock charts and explain how they are read in an easy-to-follow manner. We’ll answer questions like “What is a stock chart?” “What do stocks represent?” And “How do you read stocks?”. Once you know the basics about reading these graphs, it’s time to find your perfect online broker so that you can start trading.
What is a stock chart?
A stock graph is an easy and visual way of tracking the price changes in stocks. It can be used to see trends over time, track what’s happening with individual companies, or make predictions about future prices. Stock charts are also useful for those who want to trade stocks on their own without professional assistance.
A stock chart is a graph that displays the changes in share prices over time. It typically has three axis: “Time”, which shows how long ago the transaction occurred; “Price”, which lists what price was traded for, and “Volume” or shares sold, which tells you how many transactions were made at each point in time.
The x-axis is the time axis, and ranges from 0 to show what happened at the very beginning of a transaction. The y-axis plots how much an individual stock has gone up or down during that period. And finally, the third axis plots volume which indicates how many shares were traded in one day’s trading session.
What elements are included in a stock chart?
A stock graph contains several different elements that should be studied before trading. The two most important parts to understand are: “Relative Strength” and “Moving Averages.”
Relative strength is an indicator that determines how well one company’s performance stacks up against another, whereas moving averages show trends in price movements. Relative strength is calculated by dividing a company’s stock performance for the last 12 months by its starting value and then multiplying that number by 100. It applies to an individual stock, but can also be used to compare two or more stocks against one another.
Moving averages are lines that show how prices have changed over time on a stock chart. They are typically used to track trends over a period of time, rather than for individual transactions like relative strength is. Moving averages give you the average value of stocks in relation to one another at any given point on the graph and can be calculated by taking an index number (determined by dividing the sum total of all shares by the number of shares in an index) and multiplying it by a constant.
The most popular moving average is the 200-day moving average, which basically means that you take all transactions for stocks over the last 200 days and divide them by how many total trades there were before taking this numeric value to its higher power (e.g., if we have a total of 1000 days and 100 trades, we would divide the index number by 100 to get an “index” of 20. Then we would multiply this index by itself (i.e., 20*20) for a total value of 400).
The 200-day moving average is one that many investors find helpful because it gives you insight into the longer-term trends in the stock market.
What are the components of stock charts?
A stock chart is an individual representation of stocks and how they have changed over time in relation to one another, typically showing changes on a daily basis.
The components of a stock chart are very similar to those for other charts, such as the following:
- A time series that shows data over different intervals.
- An axis on which values are plotted or shown in their corresponding units.
- A graph line – indicating changes in stocks prices with respect to time. This line can be either a solid line or dashed/dotted.
- A horizontal axis, often labeled with time interval units such as days and hours (or minutes).
- Vertical lines that indicate the opening price of stocks on each day – these are referred to as “body” or “shoulder.”
- The closing price is the price at which a stock is sold for.
Other stock chart components include volume, which is the number of shares traded in a single day; and an “interval between trading” or interval range.
Are the different types of stock charts?
There are two types of stock charts:
- Line graphs, where the time axis is indicated by a horizontal line and points on that line represent price changes.
- Bar charts, which have vertical lines that show how prices change over different units (such as hours or days).
The most common type of chart is the bar graph because it is easy to read and understand.
There are three types of line charts:
- Relative strength, where each point on the horizontal axis represents a different stock or index in relation to how it changes over time.
- Moving average, which plots points as averages for periods such as 20 days–these are found by taking the sum of all points in the time period and dividing by that number of points.
- Linear regression, which plots a line through observations to measure how close they are together–these usually show what factors played into stock prices changes over time (such as earnings results).
Why is it important to learn how to read a stock chart?
Learning how to read a stock chart is an important first step in your journey as a trader. It will help you understand what the different parts of stocks mean and give you insight into where prices are going next.
Stock charts can be daunting for beginners, but once you know what they represent it will make trading easier!
Learning how to read a stock chart will help you understand what stocks represent, which is important before investing in them.
It can also be helpful when tracking long-term trends and understanding the relative strength of particular companies that are looking for investment opportunities or monitoring their performance against others. Stock charts are especially useful for those who want to trade stocks on their own without professional assistance.
Another benefit of learning how to read a stock chart is that it can help you make predictions about future prices based on the patterns and trends seen in past transactions, which will give you an advantage over other traders who have not yet learned this skill.
Learning how to read a stock chart also gives you the ability to trade stocks without paying any broker fees.
Finally, reading a stock chart becomes more intuitive as you get more experience with them and will make it easier for you to understand what is happening in the market at any given moment.
Tips to get you started learning how to read stock charts
Learning how to read a stock chart can be challenging if this is your first time doing so.
Here are some tips to help you get started:
- Read the title of a particular stock chart and find out what type of indicator it is (i.e., relative strength or moving average).
- Identify which index number is being used for calculations in that graph–you should be able to see this at the bottom center of the graph.
- Identify the time interval for that graph and set your chart to show a daily or weekly stock charts accordingly.
- Read through the legend at the bottom of your screen so you know what each color means (i.e., red is used to indicate where prices are decreasing). The black line in this case indicates as-of-yet unnoted prices–these will be reflected in the legend at a later date.
What is the difference between daily vs weekly stock charts?
A daily stock chart may be used for a week’s worth of data to get an aggregate view of a particular company. A weekly stock chart, on the other hand, will show changes in price over one calendar month.
It is important to know which type you are viewing before investing or predicting future prices because this can affect your decisions and strategies.
What is the best stock chart pattern?
The best stock chart pattern is one that you can understand and interpret easily.
To find a good pattern, start by looking for the following:
- A horizontal line indicating an “interval between trading” or interval range. This should be clearly labeled with time units such as hours and days (or minutes).
- A graph line, indicating changes in stocks prices with respect to time.
- Values plotted on the horizontal axis representing units such as dollars or points, depending on what type of chart you are using.
- A legend at the bottom that explains what each color means (i.e., red is used to indicate where prices are decreasing). The black line in this case indicates as-of-yet unnoted prices–these will be reflected in the legend at a later date.
- A title that explains what type of indicator is being used, such as “relative strength.”
The best stock chart pattern for beginners to learn how to read are those with clear indicators such as relative strength and moving averages. These patterns are easy to read, understand, and predict–and they can help you find a winning trade!
What online brokers have the best stock charts?
TD Ameritrade, Merrill Edge, and Etrade all have well-designed stock charts–but the best of these are TD Ameritrade’s for its color scheme. Using more than one online broker to trade will give you a wider variety of chart styles and layouts. This is important because some traders may prefer their graphs in black and white while others may prefer them in color.
Are you looking for success in the stock market?
If you’re thinking about taking your first steps toward investing the stock market, a variety of online programs and resources are available to help.
One of these programs is Fast Fortune Club, created by Tom Gentile. Fast Fortune Club claims it has helped thousands of people learn how to read stock charts and become successful traders.
I Buy I Review buys programs like Fast Fortune Club and then reviews them to determine if their legitimate or a scam. Check out of review of Fast Fortune Club here.
I buy and review courses so you don’t have to. Sometimes, I even find courses that are legitimate and worthwhile; and that’s how I accidentally came across one that led me to building a 6-figure business in a little under 5 years. Now, I still review courses because it’s my favorite hobby. 🙂 Learn more about me here.