How to Read Stock Charts and Patterns: A Beginner’s Guide
Jun 04, · Once you get the hang of reading stock charts, technical analysis allows you to observe a stock’s history in a whole new way. For example, dry bulk shipper Dryships (DRYS) ran up over % from the middle of to peaking at $ on 10/29/ Jun 07, · On a stock chart, the x-axis represents time and runs left to right. The y-axis runs vertically and represents price and volume. You should know how to read a stock table and visualize the basic chart. For the more complicated stuff, there are technical likedatingen.comted Reading Time: 11 mins.
Scoff all you want, but charts are critical to trading smart. The main character in the book, Larry Livingston, goes through ups and downs as he learns to trade.
He stoxk and loses fortunes more tp once. The average chart reader, however, is apt to become obsessed with the notion that the dips and peaks and primary and secondary movements are all there is to stock speculation.
If he pushes his confidence reas its logical limit he is bound to go broke. Reading stock charts is fundamental to trading penny stocks. Charh I started trading I put stock charts up on my wall. I studied them and learned to understand what they meant.
For a deeper understanding of charts, I suggest you apply for the S Challenge. At its most basic level, a stock chart is a visual representation of price and trading volume over time. Think back to your junior high math class when you plotted points on a graph. You had the x-axis and the y-axis…. On a stock chart, the x-axis represents time and runs left to right.
The y-axis runs vertically and represents price and volume. You should know how to read a stock table and visualize the basic chart. For the more complicated stuff, there are technical indicators. Some examples include moving averagesFibonacci retracementsand the Ichimoku cloud. There are dozens of others. A price and volume stock chart pattdrn the most basic technical analysis of a stock. If you want to trade, you need to study charts. That means you need to be able to read a stock chart.
Again, the y-axis on a stock chart represents price and volume. Price is typically shown as a line graph, a bar graph, wtock with candlesticks. Some charting software allows histogram and area graphing as well. On nearly all stock charts, volume is represented as a bar graph below the price graph. Check it out…. Again, the x-axis left to right represents time. The time ot depends on your setting.
For example, you how to make browser window smaller look at an intraday chart from the moment the market opens until it closes.
Or you look at hod one-year chart to see longer-term trends in price and volume. The chart above is one day, including premarket and after-hours trading. The far right of the chart is pre-market on the next day in this example, May Each candle on the chart represents five minutes. All t software allows you to change the time frame of candles. The same is true of how to read a stock chart pattern OHLC bars or line graphs. All charting software and apps allow you to choose from several time periods.
Use hours, a single day, multiple days, weeks, months, or years. Common chart types include line graphs and Heikin-Ashi candles. My favorite — and the style I use — is the candlestick chart. Each chart below is over 10 days with a minute period. Aside from changing the chart style — and the background on the line chart — this is the exact same chart. What is vitamin a palmitate in milk chart style you use depends on how you trade and what you want to see.
The information in each chart is based how to read a stock chart pattern the same data. But the output gives slightly different clues about possible future price action. Each chart style has advantages and disadvantages. For example, the Heikin-Ashi candle gives a clear picture of reversals and trends.
But the averaging formula obscures certain price action — which can be a disadvantage. First, learn your strategy and how to identify patterns. Then you can start playing with other chart styles. Moving average MA lines are a graphical representation of past price history. A day simple moving average SMA plots a line of the average closing price for the past days. The period you choose for the chart determines the period used for the moving average lines. For more on moving averages, check out this post.
It explains in much greater detail the different types of moving averages. It gives you the formula to calculate moving averages and use them as a gauge of support and resistance.
But the post I link to above shows you some moving average chart setups you can use for trading. For example, some traders use two moving averages — a slow and a fast. They watch for the lines to cross and this signals them to buy or sell. The relative strength index RSI measures losses against gains. Traders use it to determine whether a stock is overbought or oversold. Like with moving averages, most stock charting software allows you to plot an RSI line. For more on relative strength, read this post.
It shows you how to calculate the RSI and use it to determine overbought or oversold conditions. It also explains rfad some traders use RSI to determine entry and exit points.
There are literally dozens of technical indicators available to you for stock analysis. Some traders love to use them. I prefer to use basic support and resistance and follow recognizable patterns. If you find an indicator useful or interesting, by rewd means — learn how to use it when you trade…. But beware of analysis paralysis! Sometimes technical indicators are in direct conflict with each other.
This slick infographic breaks it down to basics. My favorite patterns how to crop an mp3 file in itunes from time to time.
I have students trading most, if not all, of the patterns I teach. First, check out the following posts on the blog:. Those posts have a ton of information about support, resistance, breakouts, and more. Once you read and re-read them, apply for the Trading Challenge. Get ready to work hard … and have an incredible ride finding your market stride. There are lots of stock screening and charting options out there.
But my favorite, by a landslide, is StocksToTrade. Designed by traders for traders, it has everything I need, all in one place. I think its charts are incredible. You can choose time constraints between one minute and month to month … This lets you view price action over any time frame. The charts come with lots of economic indicators, and you can view multiple charts simultaneously. You can also use StocksToTrade to create watchlists, scan news, and monitor tickers.
I highly recommend you check it out. I made my money day trading. I trade mostly penny stocks, and day trading is all I trust most of them for. Even just overnight, holding shares of junk stocks makes me nervous. Charts are critical for my day trading strategy. Patterns like breakouts can take place over a long period of time and tell you something about trading right now.
This is why you study history. Check out my post on dip buying morning panics. Pay attention to these. Even if the chart looks fugly on the way up, the panics are usually predictable.
Like I said, this post only covers the basics. The better question is how to read stock charts — period. Focus on your education before jumping right into trading. And do your research to find the broker that best fits your needs. There are charts for indexes too.
Stock Chart Types
Feb 06, · How to Read Stock Charts. If you’re going to actively trade stocks as a stock market investor Equity Trader An equity trader is someone who participates in the buying and selling of company shares on the equity market. Similar to someone who would invest in the debt capital markets, an equity trader invests in the equity capital markets and exchanges their money for company stocks instead of. Apr 12, · When you first start learning how to read stock charts, it can be a little intimidating. But you can quickly get up to speed with this new series on Stock Chart Reading For Beginners. Oct 14, · In its most basic form, a stock chart is exactly what I said above – a chart with historic prices of a particular stock. But where it becomes even more valuable is when you know how to read that information and decipher what it’s showing so you can make more accurate predictions about how the stock Total Time: 30 mins.
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Thank you for your support! Read more. Learning how to read stock charts is crucial for stock traders that want to perform technical analysis. By understanding price patterns, traders have an edge at predicting where the stock is going next.
Do you enjoy reading stock charts and looking at volume trends, support, resistance, and drawing trendlines? Well, then you are very focused on technical analysis, which this guide introduces. Contrarily, if you like to base your investment decisions on sales growth, total debt, and metrics like EPS earnings per share , then you are likely interested in fundamental analysis.
What types of charts are available? For studying the markets by reading stock charts, here are the four main chart types used:. It is constructed to show four pieces of information: opening price optional , closing price, high of the day, and low of the day. Candlestick charts — This chart presents the same data as a bar chart, but in a slightly different format.
The chart has two main parts. If the close is higher than the open, the real body is white. Many technicians believe closing price is the only point that matters.
For them, a line chart may be the most appropriate study. Point and figure charts — A point and figure chart is concerned only with price, not time or volume. With this approach, it is easier to spot trends and reversals.
Each chart type for performing technical analysis has its benefits. By exploring the options each approach provides, investors can determine which type best meets their needs for reading stock charts.
Below the chart I will explain these parts and what they mean when it comes to reading a stock chart. Volume is one of the most basic and beneficial concepts to understand when trading stocks. Tallying volume is done by the market exchanges and reported via every major financial website. To hand tally volume, simply add the shares traded for each order on the fly you can see orders real-time with any streaming last sale tool.
For example:. Total volume is then 1, shares for this sequence. Again, volume increases regardless if it is a buy or sell order. It is not uncommon for stocks to trade millions of shares per day. This is literally Billions of dollars worth of stock changing hands every day the market is open. On the other hand, smaller company stocks, known as penny stocks, might trade only a few thousand shares in a given day.
By understanding what volume is and how it is tracked, we can use this knowledge to help us make better informed trading decisions. There are two key benefits to tracking volume:.
Learning to identify volume trends and count accumulation or distribution day strings on a stock chart does take practice. But, when applied correctly it is can give the investor a huge advantage in obtaining profits. To understand what an accumulation day is, it is important to look at the basic meaning of the actual word.
You accumulate a lot of things in life: wealth, strength, friends, etc. In the stock market, accumulation is used to describe the accumulation of shares by traders. The more people that buy, the more shares that are then purchased, which means more shares are accumulated.
Make sense? It is exactly as it sounds: an accumulation day is when the stock closes finishes the day higher on volume or the amount of shares traded that is also greater than the day prior. Accumulation days are very positive events, because they signal underlying strength due to the fact that institutions are accumulating shares and pushing the stock price higher.
The more buying investors do, the more accumulating that is going on, and thus more a stock price will rise. One final important concept to understand when identifying accumulation days on a stock chart is to look for days where volume was above the day average.
Low volume days have little meaning, because it means few institutions were involved. Personally, I ignore them. Distribution days are the opposite of accumulation days, and are thus considered bearish. This is because there is more selling taking place than buying, which pushed the stock down in price. Remember too that, like accumulation days, the volume not only needs to be greater than the day prior, but also greater than the day average.
With a distribution day, there is simply more net sellers than buyers. Every investor should have a strong understanding of volume and its role in the stock market. Every stock gives key buy and sell signals which can be found by simply knowing how to interpret volume on stock charts. This quiz will test the basics. Stock ABC on Monday traded a total of , shares and finished the day up. Then, on Tuesday, the stock traded a total of , shares and finished the day down.
The 60 day average daily volume is , shares. What is Tuesday considered? Support and Resistance is a basic form of technical analysis that can be used as a way to predict stock price movement and help traders mark potential buy and sell points.
When prices are falling, support represents the moment when buying overwhelms selling and prices reverse. Conversely, when stocks are moving higher, resistance is the point where selling overwhelms buying and the price increases stop. Correctly identifying these trend changers will allow you to establish initial price targets and to develop your own sell discipline.
As with other patterns we have previously discussed, knowing the fine details of support and resistance levels will increase your chances for success. Support and resistance often act as decisive trend changers. When an existing trendline meets resistance, be prepared for a dynamic shift. For example, in the Allstate ALL chart, when the blue uptrend converged with resistance, prices moved lower. If support is violated, that same level will act as future resistance. As the Dryships DRYS chart illustrates, the same horizontal trendline continues after support is violated, but with differing effect.
Click to Enlarge. The more often a trendline is tested, the more valid it becomes. With four separate challenges of this level over a four-month period, we should expect any future rallies to stall at this price.
If a resistance or support level is associated with increasing volume, the trend becomes more valid. Consider the trading history of Agrium AGU. Each time that price level was tested, volume increases blue circles. Doing so will help set profit targets and prevent frustration when eventual reversals occur. Channels come in three forms: horizontal, ascending, and descending.
Descending channels are a basic form of technical analysis spotted commonly in up trends and are considered bullish; alternatively, ascending channels are often spotted in down trends and are most often considered bearish. When the stock breaks out of the channel, it can make for a strong entry point.
To be more technical, a channel is the combination of an existing trendline and an additional parallel line. Normally, the share price will oscillate between the trendline and the parallel line, enabling swing traders to create potentially profitable trades.
As long as the price remains range-bound, traders can buy at the lower end of the channel and sell at the higher end. For a deeper understanding of channels and their implications as a beginner, follow these three basic guidelines:. Channel identification Like trendlines, stock chart channels can be upward sloping, downward sloping, or horizontal. Also, we may see all three patterns on one chart.
The existing trendline is the solid line, and the dashed line represents a parallel channel line. Within this range each channel offered multiple opportunities to profit. Channel breakouts A move through the channel line indicates the underlying trend is strengthening. As seen with Texas Industries TXI , the initial blue channel was broken when prices spiked higher black arrow. This developed a more pronounced uptrend green line that has continued to power the stock higher.
Channel trading For very advanced traders, trading within a channel can sometimes lead to greater profits than simply trading with the trend. Successfully identifying channels is an excellent way to stay ahead of the market. Like all technical analysis though, practice and experience are required draw them cleanly.
There are many false positives to keep an eye out for. In short, a daily moving average is a line added to any stock chart that represents the average price of a stock over the last xx days. Traders use all sorts of moving averages. The most common is the day moving average, so a rolling line that displays the average price of the past 50 days.
When reading a stock chart, moving averages can act as support or resistance. As you start to watch stocks and look at more charts, add a 50 DMA and take note. It is extremely important because whenever a stock trades at or around this line, it can really foretell where the stock is going to go next.