How to read stock charts

Learning how to read stock charts and recognize stock chart patterns can help you make smart investment decisions. Here’s how it works.

What is stock market charting?

Stock charting is the go-to tool for traders using technical analysis. Stock charts are basically line graphs showing the prices of an investment at different points in time. Other details like trading volume may also be depicted.

Stock charts are most commonly used for spotting price and volume patterns when researching stocks. But charting can also be used to research other assets like bonds, commodities, forex and cryptocurrency.

Charts provide a straightforward way to interpret an investment’s past performance and future potential. Seeing a visual representation of prices and market data can make it easier to spot patterns and plot future movements.

How to read stock charts

Here’s a simple step-by-step guide breaking down how to reach stock charts if you’re just starting out:

1. Find the trendline. When you look at the price chart of a stock or other asset, your first task is to spot the trendline. This will be the main line on the graph that tracks the price changes and connects them all. Take a look and see if this line is trending upwards, downwards, staying flat or if it’s moving up and down a lot.
2. Look for support and resistance levels. This will show you the minimum and maximum price levels that an asset trades within. Finding this range for a given period of time can give you a good floor and ceiling to work with when you’re setting up trades. But remember these lines can still be broken.
3. Understand the dividend schedule. Many stocks and shares will pay dividends to shareholders. For many dividend-paying stocks, this will happen a few times a year. It’s worth being aware of these dates because they can temporarily push the price up or down, before or after a payout.
4. Learn about past volume. At the bottom of most charts, you’ll notice lots of small vertical lines. These show the historical trading volume of an investment. High or low trading volume can coincide with news and it shows if the asset was being bought or sold by many or few investors.

Types of stock chart patterns

Here are some of the most important stock chart patterns you might come across:

• Ascending/descending/symmetrical triangles
• Pennants: 2 converging trendlines
• Flags: 2 parallel trendlines
• Wedges: 2 converging trendlines angled up or down
• Double bottom/top: Short-term swing followed by a failed attempt to break a resistance or support level
• Head and shoulders: 2 smaller price movements on either side of a larger movement
• Rounding top or bottom: U-shape at the bottom or top
• Cup and handles: Bullish pattern with a pause in the upward momentum
• Gaps: Empty space between trading periods where there’s a price jump

Which stock charts are useful for trading?

The best charts to use for stock trading clearly show the previous prices and trading volume for a particular stock or asset. The most popular types of charts used for trading are:

• Line charts
• Bar charts
• Candlestick charts Candlestick charts are like line graphs showing a security's price movement over time. Each point is like a bar in a bar chart, showing the high, low, open and closing price.

Where can you read a stock chart?

If you’re looking for basic historical price and volume data, you can access plenty of charting tools from major finance publications and websites.

It can sometimes be difficult to find charts for less popular investments or charts that show comprehensive historical data. Most free stock charts only cover a certain period of time, say, 5-15 years. You can find these basic charts from:

• Google Finance
• Yahoo Finance
• The Motley Fool
• Morningstar
• Hargreaves Lansdown

Stock charting: Benefits and warnings

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Bottom line

Learning how to read stock charts and spot chart patterns can help you understand securities thoroughly and make smart investment choices. But charts don’t tell you everything about an investment, so make sure you reference other research tools and data sources before making any trades.

Frequently asked questions

• What is stock charting?

  Stock charting is when you use detailed graphs to get a visual representation of the historical price and volume data for stocks or other securities.

• Why do stock charts matter in trading?

  Stock charts help you easily spot major price trends and align your investments accordingly. Detailed charts provide a very useful snapshot of how an asset has performed and how it may perform in the future. But remember that predictions are never guaranteed. Investments may perform differently than expected.

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Written by

George Sweeney, DipFA

Deputy editor

George is a deputy editor at Finder. He has previously written for The Motley Fool UK, Nasdaq, Freetrade, Investing in the Web, MoneyMagpie, Online Mortgage Advisor, Wealth, and Compare Forex Brokers. He's focused on making personal finance and investing engaging for everyone. To do this he draws from previous work and his Level 4 Diploma for Financial Advisers (DipFA), sharing what he’s learnt. When he’s not geeking out about money, you’ll find him playing sports and staying active. See full bio

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