How to Read Stock Charts and Patterns: A Beginners Guide

how to read stock charts

Robinhood is an intuitive stock trading and investing app that offers zero-commission trades on thousands of investments. Volumes are good to know, but shouldn’t be your only determining factor when buying a stock. Usually, trading volumes increase when there is major news (good or bad) about the company. At the very bottom of the chart, you can see many small, vertical lines. This is a trend of the volumes at which the stock is traded.

  • Access to Electronic Services may be limited or unavailable during periods of peak demand, market volatility, systems upgrade, maintenance, or for other reasons.
  • Volume is usually expressed as a series of vertical bars at the bottom of a chart.
  • That drops the count back to one, potentially setting the stage for a renewed climb.
  • Low volume trading on Down Days – This is also a bullish indication since it indicates that on days when the stock’s price falls back a bit, not many investors are involved in the trading.
  • As the downturn continues, look for signs that mutual funds and other large investors have stopped selling heavily and started to pick up more shares.
  • I went all the way back to 2006 to find great examples of setups that work time and time again.

They are indispensable tools for anyone who invests in the stock market. That line, denoting price increases and decreases over a specified period of time, makes up the backbone of most stock charts. The y-axis (vertical axis) shows prices in dollars, while the x-axis (horizontal axis) shows how much time has passed in the chosen period. In this chart, the gray line shows how the stock is performing during after-hours trading.

Market cap

Sina Corporation’s (SINA) breakout way back in September 2010 serves as a clean example of how to read a stock chart and what to look for. Time matters – The time measurement used speaks to the validity of a trend. Generally, monthly time series carry greater importance than weekly prices, which supersede daily prices.

A sharp rise or fall in prices is most often caused by unusually high trading volume that will return to its normal level. The time and price axes are the key to helping you see where the trend lines fall, which will help you determine what’s in store for the stock you’ve chosen. You usually have a lot of options to determine the time period you want a stock chart to reflect. Prices are plotted from left to right across the x-axis and the most recent plot is on the far right side of the chart.

You’re our first priority.Every time.

Now, more than 20 years later, I still see many of the same patterns. When a sector goes out of favor, the patterns play out less often. The Challenge is where my top students built their knowledge. You can take advantage of the same things they did — often right alongside them. You can access live webinars, the Challenge chat room, and so much more.

how to read stock charts

This ratio is calculated by dividing the net income by the number of shares available in the market. This can be used to measure the profitability of the company shares you are planning to invest in. Japan’s Nikkei 225 also climbed 0.7% to close at 32,939.18, marking a six day winning streak and its highest level in over a month. The Topix finished 1.02% higher at 2,373.73, also marking six straight days of gains.

Support and resistance

You can see that the swings get larger at each bounce, suggesting uncertainty and volatility until, finally, the Price breaks out downward on increased volume. There are also timeframes to consider in evaluating a trend; for this, we will refer to Charles Dow’s classification in Dow Theory. 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.

Before learning to read charts, you might want to select charting software that is perfect for beginners. The most common trend lines added to the chart are the 200-day moving average (DMA) and the 50 DMA. The two time periods represent how to read stock charts a year of trading days and a quarter. If the stock price is above them, it is trending up; if it is below them, it is trending down. The chart typically loads the closing price from each day and then plots a line across them.

Beginner Stock Investing Tips Based Proven Data

For example, the S&P 500 ETF (SPY) trades on average around 75 million shares per market session. 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.