How to Read Stock Charts and Patterns: A Beginners Guide

how to read stock charts

Some signs to look for are momentum indicators that show a stock slowing before it reaches its peak, which can indicate it may be getting ready for a trend reversal. In addition, various chart patterns can make it easier to watch and identify changes in the stock. Although, to be clear, none can predict or guarantee what will actually happen. To make charts even easier to read, colors are used to show certain activities. For example, when a closing price is higher than the opening price, the bar may be green or black, and if the closing price is lower than the opening price, it’s red.

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Certain combinations of candles create patterns that traders may use as entry or exit signals. Once you’re comfortable reading a stock chart and you feel like you have the basics down, you might be looking for a more powerful investment tool. When you’re able to read charts, you’ll have a better chance of figuring out what happens next.

Conclusion: How to Read Stock Charts

If the price increases, the brick is coloured green and red if it falls. There are many other ways in which you can analyze a bar chart. Ensure that you understand it completely before making investing decisions. These are unclear trends and cause uncertainty in the minds of investors/traders. As you can see above, there are periods when the stock price has rallied and corrected. Based on the colours, you can see that while the months of November and December displayed a price increase trend, there were spurts of correction from January.

This will keep your portfolio diversified and reduce risk while you learn more about the stock market. EPS (TTM) stands for earnings per share for the last 12 months (or, technically, “trailing 12 months”), and that number is the “E” in PE ratio. You can get this number by dividing the most recently reported company earnings by the number of the company’s shares available on the stock market. The earnings date is the publicly displayed window of time for when the company will announce its latest quarterly earnings. It explains in much greater detail the different types of moving averages.

Time Interval

And as anyone who’s been annoyed with their local meteorologist knows, forecasts can be wrong. Note there’s a 5 cent difference between the two — this is called the bid-ask spread. Generally, when there’s high trading activity with lots of willing buyers and sellers, spreads will be smaller. how to read stock charts With less trading activity (such as during after-hours trading or trading in less popular stocks), bid-ask spreads may be wider. And when spreads are wider, it may be more difficult for an investor’s trade to be executed, or for the trade to go through at the price they wanted.

how to read stock charts

This website is using a security service to protect itself from online attacks. The action you just performed triggered the security solution. There are several actions that could trigger this block including submitting a certain word or phrase, a SQL command or malformed data. This chart uses a vertical bar instead of a line to represent price. The points are then connected with a line, which provides an easy way to visualize price changes. Steven Hatzakis has led research at Reink Media Group since 2016 and brings over 20 years of experience with the online brokerage industry.

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