How Do You Read a Stock Chart? An Simple Explainer

how to read stock charts

While this all sounds complicated, it’s just like learning Once you understand support and resistance levels and the other indicators Tela talks about, it’s easier to understand how charts can make a big difference in your stock trading. Understand that it will take some time before you are comfortable reading and interpreting many of these charts. Don’t become discouraged, as many experts will happily tell you that it took them years to develop a high-level ability to read stock charts. Spend 15 minutes a day, start reading what other people are seeing, and you will be surprised how quickly you start to see patterns yourself in stock prices. Stocks charts are polarizing among investors focused on the long term. To some, using them is akin to reading the intestines of a goat to try to predict the future.

How to read a stock chart for dummies?

The dummies must first choose the chart type, period, and range. After that, one must select a color scheme for the chart. One may also see the grids on the screen, which one may set every line’s presentation as dense, solid, or dashed. Next, one may see legends where they view the information about the stocks or other assets, for which one may develop a chart where they can determine how much detail they want to display.

Shorts are usually not meant to be long-term investments but are still useful for portfolio management. Using the stock chart to wait until the stock is in a downtrend can save you from losing a ton of money on growth stocks that just won’t quit going up. Doctors use these tools to spot patterns and anomalies, and to make a proper diagnosis. Savvy investors use charts for essentially the same reason. They help you to understand the true health of a stock, and spot timely buy and sell signals.

Support and resistance

Where trends show you what direction a stock is moving in, momentum indicators tell you the speed it’s moving in that direction. The more you delve into momentum indicators, how to read stock charts the further you move from long-term investing and into speculation and trading. So always watch how your stocks behave when they’re trading around their moving averages.

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  • The following terms are used every day by both long- and short-term investors.
  • Bottom line, to break through a key support or resistance level on a stock chart, volume is needed in quantity.

Even if a stock price is rising in the short term, that increase may be a blip amid a prolonged decline. Look at longer time horizons for a more complete picture of trading activity. Next, you’ll want to identify lines of support and resistance. A line of support is a price that a stock is unlikely to drop below, while a line of resistance is one that it’s unlikely to go above. That is, until some major change occurs, such as a reduced profit margin. The degree of interest that the market has in stock tends to appear in the stock’s trading volume numbers.

The Day Trader’s Favorite: Candlestick Charts

A level of support shows a price a stock is unlikely to drop below. Keep in mind that trend lines rarely move in one direction constantly—swings and fluctuations are normal. You have the option to add official real-time data for the US, Canada, the UK and India to your account. The official exchange fees for the country that you select will be billed to your account in addition to the cost of your monthly StockCharts membership. StockCharts accounts are typically billed on a month-to-month basis. If you cancel, you will be billed for the current month but you won’t be billed again.

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