How To Read Stock Charts In 2022 • Beginner Traders • Benzinga

If you’re new to investing, one of the first skills you need to learn is how to read a stock chart. At a glance, you can see how a stock has performed over a specific period to better understand its potential.

Knowing how to read a stock chart is like uncovering the story behind a stock: Each chart tells a tale of investor behavior and past performance. When you know what to look for, you can identify opportunities and make the right investing decisions.

In this guide, we discuss the different types of charts and the insights they can offer you.

Table of Contents

• What are Stock Charts?
• Types of Stock Charts 
• Line Chart
• See All 21 Items

What are Stock Charts?

A stock chart depicts a stock’s price and movement over a certain period on a grid with details about current and historical price changes.

On the chart, the horizontal X-axis will show the time period over which a stock has traded. The time period can range from one day to a week to a month, to a year, to the entire time a stock has traded. The vertical Y-axis shows its price.

A chart can also include technical indicators like a moving average (MA) of the price taken over a certain number of days or other information like volume and the company’s financial details.

Types of Stock Charts 

Line Chart

A line chart shows the stock price in a line, at any given point in the trading day, typically the closing price, with a single point. Each price point is connected to adjacent prices with lines. It’s the most common type of chart you’ll see.

Bar Chart

A bar chart shows the range of the stock for the period in the form of a vertical line or “bar” from the high to the low price. A horizontal line is drawn to the left and the right at the opening and closing stock price levels respectively.

Candlestick Chart

The candlestick chart carries more information than line and bar charts, and it’s a favorite of technical analysts. The color of the “candlesticks” shows if the stock closed higher or lower for the period. Green is generally used for up periods and red for down periods.

The candle's “body" will show the range of the stock price from open to close. Two “wicks” extend from the top and bottom of the candle’s body that show the upper and lower levels of the stock price range.

Other Elements of a Stock Chart 

Besides prices, you may see other details in the graph chart that give investors additional information about the stock.

Ticker

Companies listed on a stock exchange have a unique ticker symbol which is used to identify the stock. Tesla trades on the Nasdaq with the ticker symbol TSLA. Exxon Mobil trades on the New York Stock Exchange under the ticker symbol XOM.

Dividend

A dividend is a portion of a company’s profit it may share with investors, and it’s usually distributed on regularly scheduled dates. If company XYZ pays a quarterly dividend of $1 per share, and you own 100 shares, you will receive $100 every three months. Not all stocks pay dividends.

Dividend Yield

A stock’s dividend yield is a ratio calculated by dividing the annual dividend by the current share price. If company XYZ pays a quarterly dividend of $1 per share and shares are trading at $100 each, investors would get $4 per share every year for a dividend yield of 4%.

High and Low

Stocks hit a high and low price in every trading session. The high and low reflect the highest and the lowest price points of the day.

P/E Ratio

The price-to-earnings (P/E) ratio is derived by dividing the current stock price by the amount of money the company has earned per share over the year. If a company's stock is trading at $25 per share and the company's yearly earnings are $3 per share, the P/E of that stock is $25/$3 = 8.3.

Open and Close

In the U.S., stock markets normally operate between 9:30 am and 4:00 pm ET, Monday through Friday. The open is the opening price of a stock when the daily trading session begins at 9:30. The closing price is the last price a stock trades at when the session ends at 4:00.

Market Capitalization

The market capitalization (market cap for short) is used to measure the size of a company based on the number of shares on the market multiplied by the current stock price. If company XYZ is trading at $100 per share, and there are 30 million shares on the market, XYZ’s market cap is $3 billion.

Beta

Beta shows a stock’s volatility, or risk in comparison to the overall stock market. If beta is more than 1, the stock is more volatile than the stock market. If it’s less than 1, the stock is less volatile than the market.

Reading Stock Charts

Trend Lines

Trend lines identify if a stock has a particular price trend. A price trend is a directional movement that consists of a set of higher highs and higher lows of a stock price. A trend line is drawn between the highs and lows, and it gives you a visual assessment of whether a trend exists and to what degree.

Resistance and Support

Resistance and support levels help technical analysts get a sense of the breath of movement a stock may trade in. A support line shows the price level a stock doesn’t fall beneath. It works like a floor that supports the stock and holds it upward. On the other hand, a resistance line is the price level the stock won’t trade above. Stocks often move within the range defined by these two lines.

When a stock trends upward or downward, it eventually falls between the support and resistance lines. If it breaks the resistance level, the previous resistance line becomes the new support line. However, the opposite can also happen if the stock falls below the support line.

Trade Volumes

A stock’s trading volume shows the level of interest it’s receiving in the market. Notable shifts in trading volume can offer a helpful signal to confirm a directional movement in a stock.

If a stock's price increases due to large volume, there’s a good chance it will continue to rally due to strong buying interest. The same concept tends to hold if a stock declines on a large amount of volume. It shows selling pressure and a bearish move.

Online Brokers With the Best Stock Charts

Popular online stock brokers provide excellent charts for beginner investors. In addition, several non-broker websites like TradingView provide stock charts free of charge.

Stock Charts Are Invaluable to Technical Analysts

Beginners and professional investors depend on stock charts for a clear picture of the price action in the stock they’re keen on investing in. The condensed information in a stock chart can give investors an edge when making investment decisions. If you’re serious about investing, it makes sense to learn more about reading charts to increase your chances of success.

Frequently Asked Questions

Q

How do beginners read stock charts?

A

Beginners can read stock charts by recognizing basic components like price, time axes, and chart patterns. Choose one or two indicators and grow your skills from there. Over time, you’ll be able to make strategic investing decisions using charts.

Q

What are the best techniques for beginners to use in reading charts?

A

Some of the best techniques involve looking for the moving average, support levels, resistance levels, trend lines and changes in volume.

Q

Which is the best technical indicator in a stock chart?

A

The Relative Strength Index (RSI) is one of the most popular technical indicators for identifying oversold and overbought stocks thanks to its simplicity of use.

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