A stock chart is a visual representation of a stock’s price over time, and many traders and investors rely on stock charts to perform technical analysis as a part of their trading strategy.
By learning how to read a stock chart, you can gain insight into a stock price’s seasonality, volatility, trading volume and other historical information to find patterns that may indicate shifting trends and potential trade opportunities.
Technical analysis is a trading and investing technique used to evaluate securities and identify trading opportunities by examining past price movements, volume and other trading indicators, usually via a stock chart.
Different platforms use different stock charts, but the three main types of stock charts are line charts, bar charts and candlestick charts.
Here’s a breakdown of what each looks like and what they display.
The basic line chart lets you quickly visualize an asset’s price history. Key information you’ll typically find on a line chart includes:
Here are some helpful elements you should know about a bar chart:
At first glance, candlestick charts may be a bit more confusing for first-time investors to read. However, here are their most important features.
If you’re new to buying and selling stocks, here’s a list of helpful terminology you may come across and what each means.
Support and resistance is a term used in the technical analysis of stocks. It’s a level where supply and demand meet and can temporarily stop a stock from rising or falling in price.
There are many stock patterns to look out for when reading charts, but here are the most popular.
There are several terms worth learning before you dive into how to read a stock chart:
| Term | Definition |
|---|---|
| Open | The opening price of the stock during a given period |
| High | The highest price of the stock during a given period |
| Low | The lowest price of the stock during a given period |
| Previous close | The last price the stock traded for at the end of the previous day |
| Market cap | The total value of all the company’s stock; calculated as stock price multiplied by number of outstanding shares |
| PE ratio | Price to earnings ratio; an evaluation metric calculated as stock price per share divided by earnings per share |
| Dividend yield | How much a company pays in dividends relative to its stock price; calculated as dividend divided by stock price |
| 52-week high | The highest price the stock traded for in the past year |
| 52-week low | The lowest price the stock traded for in the past year |
More complex stock charts may include some or all of the following terms:
| Term | Definition |
|---|---|
| Bid and ask | The bid price is what buyers are willing to pay. The ask price is what sellers are willing to sell the stock for. |
| Volume | How many shares of a given stock have traded in a given period. |
| Average volume | A measurement of how much a given stock has traded over a specified period |
| Day’s range | The difference between the high and low prices of the day |
| Beta | The measurement of a stock’s volatility compared to the overall market. Riskier, more volatile stocks have a beta greater than 1.0. Safer, lower volatility stocks have a beta of less than 1.0. This isn’t found on a stock chart, but it’s important information to seek out. |
| Earnings per share | A calculation of the net income earned for each share of stock. |
| Earnings date | The next date the company publicly reports earnings. |
| Ex-dividend date | A record-keeping date to determine which shareholders receive dividends. |
| 1-year target estimate | An analyst’s prediction of what the stock’s price will be in one year. This prediction won’t be featured on a stock chart, but you can find it near the stock chart. |
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Reading stock charts and using technical analysis can be a useful tool for traders and investors to assess the stock market and find possible trading opportunities.
If you’re interested in getting started leveraging stock charts as a part of your trading strategy, explore the best trading platforms for beginners to find the broker and trading tools that are right for you. While some stock charts, such as line charts, are easier to read than charts such as candlestick charts, you can build your skills with practice.
Beginners can research stocks by starting with analyst reports to help cut down on much of the legwork and get the basic facts. From there, incorporate more of your analysis as you become more comfortable analyzing company financials and technicals.
The best way to understand the stock market is by learning how it works. Many online brokers have built-in tutorials that can make investing and reading a stock chart easy for beginners.
A stock chart signal may be a trigger to buy or sell a stock based on analysis or a pre-determined set of criteria. Charts and patterns can signal potential buy and sell opportunities, and learning how to read these signals takes practice.
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