How To Read a Stock Chart – Technical Analysis
Welcome back, and welcome to 5th Grade, you are doing well!
This section is all about understanding a basic Chart. Known as “Technical Analysis” Chart reading enables us to visualize a stock not through numbers, but through patterns. It enables us to get to know the stock, see its history, learn its personality and make a value judgment on its future.
We will start with a basic price chart and move on to technical indicators and how to assess their importance and meaning in future sessions.
A Typical Stock Chart
See below a stock chart of INTEL (INTC) what does this tell us?
Well, an awful lot actually.
What does it tell you?
The Same Chart With Narrative
Now, look at the same chart with comments, once you understand what each of these arrows means you are ready to step forward into the technical indicators section.
Description of the Elements of the Stock Chart
This chart is in the format of a Daily “Open High Low Close” OLHC bar chart, mapped to the Logarithmic Scale.
Ticker & Company Name
The ticker (INTC) is the unique abbreviated stock reference code, all stocks have a unique Ticker so they can be easily found and referenced.
The are many different types of charts available to use, this one is an OLHC Chart which means “Open, High, Low, Close”. OHLC refers to the bar itself. Opening price is the left sided dash, High, is the top of the vertical line, Low is the bottom of the line, and Close is the right-sided horizontal dash.
Time-frames are always plotted along the bottom of the chart and can be anything from 1 minute per bar (intraday) to 1 year per bar. This chart shows a Daily chart which means each bar = 1 day.
Chart Scaling is very important, most professional chart readers use the “Logarithmic Scale” meaning each unit along the right sided Y Axis, is the same percentage apart, this makes it very easy for you to see on the price chart what percentage a stock moves on any given day in history. The bottom right-hand side if the chart shows a 2.20%, this is the % between each of the horizontal Plotlines
The other key scale is the “Arithmetic Scale”, which shows a fixed price in the Vertical Y Axis, like $2, $4, $6 etc.
The theories behind candlestick charts are so abundant that one could write a book about it and in fact many have.
We dive into this in depth in our PRO Training, however, we will keep it short and sweet in this section.
This graphic shows candlesticks, Green being an up day and red a down day.
Also worthy of note is the hollow candlestick shows the up day pictorially quite nicely as the extent of the surge “Trading Range” from Opening Price to Closing Price can be seen very clearly.
In this graphic you can see one of the most popular uses of a candlestick chart, to spot a “DOJI”
The “Doji” is when the opening price and the closing price are very close together. This indicates there could be a change in direction, this is not true 100% of the time, but it does hold true more often than not.
The Doji Cross is formed when the Bulls and the Bears cancel each other out in trading for that day and equilibrium is achieved.
This could indicate a support level or resistance line in encountered or being built., In this picture there is clearly a reversal in the trend.
That was a lot of information, however, now you are on your way to being a Chart Reader.
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