Reading stock charts, which are visual displays of information about a particular stock company, is essential for anyone who wants to become an active trader in the stock market. Even though most stock charts might seem quite basic, many traders can find it challenging if they do not know the tips and tricks.
It can include trading volumes, price variations, price history, dividends, current price, and other financial details. Therefore, a trader must know how to read stock charts to understand the company’s performance and decide whether to invest in it or not.
Types of Stock Charts
A standard stock chart will have a line or a candlestick display with the price on the y-axis and the time on the x-axis. You will usually find another line representing the moving average derived from the past pricing data averaged over a period designated by you.
You may also find some vertical boards at the bottom of the chart representing the number of shares traded in a day. You may notice that some days will have higher bars than others. If you zoom in on the data located at the upper part, you may find some essential details, such as ticker, timeframe, exchange, and pricing.
These are some of the crucial aspects to look for in a stock chart.
- The ticker is an acronym that a company acquires when they file to go public with the stock exchange. You will need the ticker to get a company stock chart for the trading platform.
- Stock charts can show the fluctuation in price over a timeframe decided by you. You can even monitor timeframes of one minute, but the most popular ones are 30 minutes, 60 minutes, daily, and weekly.
- Even though most companies trade through the NASDAQ, you may find that some companies like General Electric only trade on New York Stock Exchange.
- L denotes the last price fetched for a particular stock. You may also find B for Bid and A for asking price on the chart, which might keep changing throughout the day. You will also find O, which is the opening price for the trading day.
- Hi denotes the highest price fetched by stock during the trading day while Lo is the lowest price.
- V stands for the volume or the number of shares traded during the day.
- Mov Avg Exponential is the average of the prices for the last nine timeframes. For example, if you have set a timeframe for each day, the Mov Avg Exponential will show you an average of the nine previous days.
Line Charts
Line charts are the most common stock charts you will find on financial websites and stock monitoring services. Line charts are ideal for beginners because they are the easiest to understand.
Traders can set a period of their preference to see how the stock has performed. Line charts are perfect to spot pricing trends, but they do not contain adequate information for advanced traders looking for a wider range of information.
Candlestick Charts
Candlestick charts are another popular form of a chart that plot the price data for a stock. Traders can monitor the charts to find the opening price, highs, lows, and closing price of company stock over a particular time frame. The height of the candlestick bar tells traders how the stocks closed in relation to their opening price.
Red candlesticks depict down days, whereas the green ones are for the up days. The wick on top of a candlestick indicates the highest price fetched by the trade during a particular time frame, whereas the lower wick indicates the lowest price.
If there was no movement in the stock price, you would not see a wick on a candlestick. Candlestick charts are more popular because they display a lot more information than line charts.
Spotting Trends
Trends are the easiest thing to identify on a chart. A stock is said to be trending when it is moving consistently towards a certain direction over a time frame, either up or down. You should always trade with the trend for the trending stocks instead of fighting it.
Identifying Support or Resistance
New traders should always learn how to identify support and resistance trends for a stock. You will notice that a particular stock might be rising or falling consistently when it reaches certain price points. The price at which it rises is the support, and the one where it falls is the resistance.
Continuous support and resistance levels will tell you that there are buyers and sellers at those price levels, which can influence your trading decisions. It may not work every time, but it is a good reference to trade intelligently.
Importance of Reading Stock Charts
Stock charts can give you a lot of vital information regarding the performance of a particular stock. If you know how to read a stock chart properly, you can make better trading decisions. Candlestick charts can inform you if large investors are buying a particular stock or selling it fast.
That means you can follow them because they have access to a lot of analytical tools and usually make the right decisions. You can also use stock charts to spot anomalies or patterns that can help you make wiser choices about buying and selling stocks.
Learning to read stock charts can seem daunting for beginner traders. However, they need to know the basic tips and tricks and get some practice to become experts at reading them. Reading stock charts is the best way to understand which stocks to choose, when to buy them, and when to sell them.
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