How to Read Stock Charts for Dummies

How to Read Stock Charts for Dummies

A stock chart is a price chart that illustrates a stock’s price over a period. Reading stock charts is arguably the essential skill to learn to buy and sell investments on the market successfully.

Stock charts are critical when viewing highly volatile news-driven markets.

For many investors, diving into the analytics of a stock chart can be the difference between finding the following highly successful stock and taking a chance and selling at a loss.

Understanding what a stock chart comes with is understanding specific binding terms associated with or located within a stock chart.

Breakout stocks are stocks in the early stages of their lifespan which are bound to spike value. One of the main reasons for reading stock charts is to identify and invest in breakout stocks.

Open, high, low, and previous close are all terms describing the price of a stock in a regular trading hour cycle.

Open is the price at the beginning of regular market hours.

High and low values are the highest and lowest prices achieved during a regular market period, respectively.

The previous close is the closing price of a stock from the previous day’s regular market hours.

How Do You Read a Stock Chart?

When reading a stock chart, it is essential to understand that the market is not open for trading 24 hours a day.

Premarket trades operate from 4:00 am to 9:30 am ET, regular market hours operate between 9:30 am and 4:00 pm ET and after-hours markets operate between 4:00 pm and 8:00 pm ET.

A seasoned trader will not look at a stock chart and see prices plotted over time.

They will see a story.

Stock charts contain many indications of the behavior of the individual stock and give insights into the stock’s future potential.

For example, if the stock charts illustrate a large spike or decline, this could be a sign that a major investor in the stock, such as a brokerage firm or large holder, had dropped or bought the stock.

With this information, a trader can then decide whether it is best to purchase, sell, or hold the stock by analyzing trends in the stock chart.

A beginner in the trading world should utilize not just daily charts but also weekly and monthly charts. Weekly charts give better insight into the overall trend of the stock and a long-term perspective to compare against daily spikes or drops.

Daily charts, on the other hand, give vital insights into the volume in which the stock is being traded or the behavior of the stock at time-sensitive moments throughout the day.

Understanding price and volume as a new investor is key to understanding the underlying story of the stock chart.

For example, if a stock drops 3% in price each day, but the volume of stocks traded is low, this could be a sign that major players in the market are not aggressively selling, indicating that holding the stock is probably the best option.

Did you know?

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