A Beginner's Guide on How to Read Stock Chart

  • 20th Oct'21
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Investing is one of the critical strategies, and individuals must strive for the right investing. Stocks are excellent sources of investment that can bring profits to individuals through their different channels. However, for a layman or a beginner, reading stocks could be intimidating. It is mainly because they do not know how to kickstart. They want to get the hang of it quickly and invest in growth stocks. One of the processes that could simplify the struggle is Stock Charts. Stock Chart helps users assess which stocks to buy and which ones to sell, looking at their past performances. Simply put, stock charts give detailed information about stocks, past prices, performances over the chosen period. It thereby helps you make an informed decision about your investment in such stocks.

Stock Chart depicts the price of a stock over a period of time, let's say in three years. You can check out additional information like current price, historical rates, and predict its future course. You can alter many factors within the chart for a straightforward analysis, like the time frame and chart type. Traders mostly need to learn to read stock charts to compare data and base financial analysis to invest in better stocks. Without the proper knowledge, they may lose money in the stock market


stock chart


Tips To Read Stock Charts

Here is a brief note on how to decipher stock charts. Ensure you look at examples while analyzing so that you do not become overreactive to common changes.


The Ticker Symbol

It is a short abbreviated name of a company and appears at the top of the chart. Ensure you are looking at the right stock as you start reading the stock data from the chart.


The Changing Trend Line

The trend line is the first thing you would see in a stock chart. And the line moves with its twists and turns. The trick is to give some time while understanding the reasons behind the crests and troughs. You must not think that a drop could be negative and misread the reasons behind it. The changes in a company internally or externally influence its stock performances, and that reflects in the charts.


Compare the Price and Volume

Users mostly mistake the stock valuation by only looking at the price. Always do a comparative analysis of the price and volume to see the market behavior correctly.

For example, A low volume stock showing an exemplary gain can mean a false spike. Similarly, a slight fall in the low volume stock may not necessarily mean underperformance. It could also mean that the investors are waiting for the right opportunity to sell it at the right time. Looking at these details while doing chart analysis will ensure you read them correctly.


Read the Lines of Support and Resistance

The line of support depicts the level below which the stock price won't fall, and the resistance line is the opposite. It shows the highest value of the stock. By interpreting the stock performance and drawing these lines, you will know when to buy and sell. The idea is to refer to a considerable period, check out the stock chart, understand your goal of short-selling or going long and then decide the action. The bottom and the peak points will give you an idea if it's the apt time to sell and buy, or you could expect the price to rise or fall, respectively.


Don't Neglect the Summary Key

For beginners to invest in the stock market, they must decode the stock chart through the summary key. It briefly summarises the volume of stock traded, moving average, current price, and so on.


Cover all the Facts in the Chart

Sometimes profitable companies declare dividends to the shareholders over the stocks held. Again, it may not always hold true. Some other companies believe in reinvesting the earnings and focusing on long-term growth. Both types of companies are worth investing in. You must look at the trend and interlink it with your goals to make better investing decisions. Do you want to invest for a longer period? If so, concentrate on growth stocks, and if not, stocks with dividends are a good choice. You must keep an eye on the stock charts regularly to guide yourself better.

The stock split is another company strategy that allows more shares than the previous holding. The company attracts more investors through this strategy, thereby increasing the demand and the share price in the future.


analyzing the stock chart


Types of Charts

Line Chart: It is the most common form of a chart that assesses the daily reading of the stock values. It is a line that displays every price change between the day's opening price and the stock's closing price.


line chart


Point and Figure Chart: Unlike a time-based chart, this one shows the price changes in direction. The X's represent price rise, and O's shows a fall in stock prices.


Bar Chart: The most preferred chart by traders is the bar chart. It shows the opening, closing, and highest and lowest price levels in the day. It nearly gives a daily overview of the stock price changes.


Candlestick Chart: It has a different structure and has two lines and a broad body. The thin lines show the price changes, and the body calculates the difference between the opening and closing price.


Head and Shoulders Chart: The graph forms the structure of a head and shoulders on either side of it. The highest point of the upward trend is the top, and it depicts that the upward trend will end soon. Investors call it the reverse chart pattern.


The Speculation 

It is essential to analyze and read stock charts to decipher the future charts to know the status of your stock. There are many charts, and it is not easy to take it all in one go. So you can rely on several stock trading tools to give you a perspective. TD Ameritrade, Etrade, and Robinhood are some trading platforms that provide you with excellent tools and expert insight into stock charts analysis.

These are some of the investment strategies during a downturn in the economy. Above all, you must note that the stock market is highly speculative. Even if you study the trends and decipher the charts, things may not be the same in the future. Knowing is much better than blindly investing in a vast market with many changes around the market and the pink economy on the rise.


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*Note: The content published above was made in collaboration with our members.

About the author:

Supriti Tripathy, OpenGrowth Content Team

A believer of good things and pursuer of diverse avocation, she is a fiction lover and a simple writer. Supriti has a number of professions to her list and she feels challenges are the only answers to failures.

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2021-12-01 13:03:21