How to Read Stock Charts & Understand [5 Minute Lesson]

Learn how to read a stock chart in 5 minutes. Bar Charts, Candlesticks, Price, Open, High, Low, Close, Scale & Time, we have it all covered.

Reading Stock Charts – Known as Technical Analysis

This section is all about understanding a basic stock chart. Known as Technical Analysis or stock chart 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.

How To Read A Stock Chart? – Quick Reference

  • Ticker & Company Name – What Company Stock Price are you looking at
  • Chart Type – What Chart are you using – Bar, Line, Candlestick
  • Time Frames – Daily, Weekly, Monthly or Yearly
  • Chart Scaling – What Scale is price using, Percent, Fixed, Algorithmic or Logarithmic
  • Price Bars – Indicate the Open, High, Low, Close of price for the day

A Typical Stock Chart Example

See below a stock chart of INTEL Corp. (Ticker: INTC) what does this tell us?

Well, an awful lot actually.

What does it tell you?

Basic Chart Pattern
Basic Chart Pattern OHLC

TeleChart2007 chart courtesy of Worden Brothers, Inc.

A Typical Stock Chart With Explanation

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.

Detailed Stock Chart with Description of all elements - Click to Zoom
Detailed Stock Chart with Description of all elements – Click to Zoom

TeleChart2007 chart courtesy of Worden Brothers, Inc.

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.

Chart Type

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. The 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.  Read more about stock prices

Time Frames

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 equals 1 day.

Chart Scaling

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. If the bottom right-hand side of the chart shows a 2.20%, this is the % between each of the horizontal Plotlines

Arithmetic Scale Example Chart

Arithmetic Scale.

The other key scale is the Arithmetic Scale”, which shows a fixed price in the Vertical Y Axis, in this example the scale increments every 50 cents, $12.50, $13.00 etc.

 

Candlestick Charts.

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 is an up day (meaning the stock price increased) and red a down day (meaning stock price decreased).

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.

TeleChart2007 chart courtesy of Worden Brothers, Inc.

Support & Resistance Trendlines On Charts

Often on charts, you may see support an resistance lines drawn by someone else or automatically by a stock chart indicator.  This is a chart of Ticker: AAPL Apple Inc. it shows various trend lines in a downward price move and an upward price move.

Reading Stock Charts - Support and Resistance Trend Lines
Reading Stock Charts – Support and Resistance Trend Lines

Reading Moving Averages on Stock Charts?

Many charts come pre-configured with moving averages. Here we are using 3 Moving averages you could use 2, however, 2 is the minimum. You can set different moving average timeframes, common ones are the 10:20:50:200 day MA’s.

Moving averages can be used to assess the price trend of the stock if the stock price is above the moving average is could be considered bullish.  If the stock price is below the moving average on the chart it is considered bearish.

3 Line Moving Average Chart - 4 Point Analysis

3 Line Moving Average Chart – 4 Point Analysis

TeleChart2007 chart courtesy of Worden Brothers, Inc.

That was a lot of information, however, now you are on your way to being a Chart Reader.

How to Read Different Types of Stock Charts Video

Now that you understand the basics of a stock chart, you can learn about stock price patterns.

Learn Stock Market Trading and Investing with our "Trading Academy FREE" 10 Modules, Videos + 2 eBooks. Click Here to join our 20,000+ Members

Summary
How to Read a Stock Chart?
Article Name
How to Read a Stock Chart?
Description
Ticker & Company Name - What Company Stock Price are you looking at? Chart Type - What Chart are you using - Bar, Line, Candlestick Time Frames - Daily, Weekly, Monthly or Yearly Chart Scaling - What Scale is price using, Percent, Fixed, Algorithmic or Logarithmic  Price Bars - Indicate the Open, High, Low, Close of price for the day
Author
Publisher Name
Liberated Stock Trader
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3 COMMENTS

  1. I like the information available on your blog. It makes it accessible to anyone that likes Trading but never had the time to get the key data in a concentrated manner.
    Thanks for taking the time…
    Joseph

    • it is definitely worth using candlesticks, in my soon to be released training and accompanying book, I show a really easy way to understand candlesticks which does not take forever to learn. Candlesticks are great because they allow you to visualize supply and demand in a simpler way. They are not 100% required, but are a nice supplement.

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