How to Read Stock Charts for Beginners

Draw a trendline by connecting the stock prices’ highest highs and lowest lows. Then add the moving average indicator to the price to see the trend. When learning how to invest in stocks, stock charts can seem overly technical at first.

Too few indicators can lead to false signals and poor choices, whereas too many can lead to “analysis paralysis” where no trading signal is ever given. By stacking your orders, you lower your initial risk and take on more risk only when you see confirmed strength of the underlying stock. To see how Fossil has fared since its monster breakout, view the weekly chart below. Take note of the multi-year cup & handle setup that had formed over the last three years. In the 12 months after its breakout in August 2010, Fossil stock ran over 220%.

Chart Indicators: Moving Averages

A line of resistance measures a price range that a stock is not likely to move above while a line of support measures a price range that a stock is not likely to move below. There is virtually an endless list of technical indicators for traders to choose from in analyzing a chart. Experiment with various indicators to discover how to read stock charts the ones that work best for your particular style of trading, and as applied to the specific stocks that you trade. You’ll likely find that some indicators work very well for you in forecasting price movement for some stocks but not for others. Along the bottom of the main chart window, the daily trading volume is shown.

• At the bottom of a candlestick chart is usually a bar chart displaying trading volumes.
• Many investors recognize a ticker symbol and the price of a stock.
• Here we have a popular indicator called Relative Strength Index, or Wilders RSI.
• Think in terms of a “floor” of support and a “ceiling” of resistance.
• Stock prices can do just about anything in the short term, but over time they tend to reflect the performance of the underlying business.
• We can also see the stock price “closed” 15 cents higher than it did on the previous trading day (when the close price was $190.54), meaning the price rose by about .08%.

You can use those entries to add to your existing position or, in some cases, initiate a new one. Earlier we saw how the best stocks usually form “stepping stones” as they make their big moves. They’ll go up for a while, pull back to form a new chart pattern, then resume their climb — giving you multiple opportunities to make money. They typically form after a stock has made a nice gain from a cup with handle or double bottom.

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Stock charts can help you determine what a stock might do and can guide you so you’ll know whether to buy, sell or hold. You can learn how to analyze chart patterns and flush out uptrends, downtrends, whether a stock is trading sideways and even give you details about the company as a whole. Just like doctors use X-rays to see what’s happening beneath the surface, reading stock charts enables investors to understand what’s really happening with the stock of a company. Reading stock charts can feel intimidating and even overwhelming at first.

These additional metrics expand your information beyond a stock’s price. Price Up–Volume Up Stock Price moves higher on increased volume. This is bullish as it shows us that more participants are interested in selling the stock at higher prices and that, most importantly, more people are interested in buying it at higher prices.

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When a stock is trading around or on this line, it can tell you a lot about the stock’s price action and overall trend. A stock chart’s y-axis tracks prices and its x-axis tracks time periods—from minutes and hours to months and years. By analyzing how a stock’s price has changed over time, investors can identify trends and patterns that inform their strategy. For example, a 200-day moving average looks back in time and averages the price over the last 200 trading days. These indicators are often used to find buying or selling signals.

In turn, spotting the next big winner will be an easier task. Once you get the hang of reading stock charts, technical analysis allows you to observe a stock’s history in a whole new way. However, he says long-term investors shouldn’t put too much emphasis on stock charts. If you manage to learn how to read a stock chart, you can use indicators created for trading platforms to automatically determine the EPS ratio of the stock that you are planning to trade. It indicates how many years of profits it takes to recoup an investment in the stock.

Perhaps you’re weighing a job offer, looking at economic trends among companies in your region, or pitching potential clients at a firm. Looking at stock data can give you a better sense of what’s going on. This can help you decide which company stocks might be a better option for investment.

Review the chart, and read below the five key points explaining usage. Price Up-Volume Down in an uptrend is bearish as it suggests that although prices are rising, fewer participants suggest people are backing away from the higher https://www.bigshotrading.info/blog/what-are-bid/ prices. In a downtrend, it suggests a continuance of the downtrend. Here we see massive buying; the volume goes through the roof. Important to note is that we are comparing the volume of the stock in comparison to its history.

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High volume when the price decreases mean there is a large sell-off happening. When the stock price increases, high volume means a rally in the stock price and great demand. Indicators do not tell us something 100% of the time, but we need to recognize it when they do. For example, if the stock price increases and the volume decreases, fewer people buy at a higher price. This means a change in demand and a potential change in the direction of the stock price.