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How to read a stock chart: a beginner’s guide

Learn to interpret data-rich stock charts to execute informed trades.

A stock chart is a visual representation of a stock’s price over time. Knowing how to analyze this data can help you identify investing risks, trends and opportunities.

Stock charts help you identify patterns

Stock charts are used as a planning tool for trading stocks. By learning how to read a stock chart, you gain insight into a stock price’s seasonality, sensitivity to change, volatility and risk. Stock chart data can also help you perform technical analysis — an advanced method of evaluating stock prices to predict how the price will change in the future.

3 types of stock charts

Here’s what they are and the differences between them:

    1. Line charts. These are used mostly to give a quick snapshot of the price market. Line charts are almost never used for technical analysis or to predict price movements. Instead, they are used by Google or Yahoo to show you the price of a certain stock.
    2. Bar charts. These were used in the past to predict price movements because you can see open, high, low and closing (OHLC charts) prices for a single trading session. OHLC charts are rarely used today, but you can find them in newspapers like Barron’s.
    3. Candlestick charts. These are advanced bar charts. Where bars have a hollow midsection, candlesticks have a full body. This can give traders visual cues and easily identify chart patterns necessary to predict price movements.

How to read a bar chart

A bar chart is one way of analyzing a stock’s price over time. It uses vertical lines to represent the stock’s price.

Stock bar chart

Some important features of a bar chart include:

      • Time intervals. Each bar represents a set time. Changing the time interval changes the amount of information and timeframe of data held within each bar.
      • Opening and closing prices. The opening price is noted as a tick mark on the left side of the bar. The closing price is a tick mark on the right side of the bar. You’ll notice that the closing price of one bar is typically the opening price of the next bar.
      • High and low prices. The highest point of a vertical line is the highest price the stock sold for during that specific time interval. The lowest point of a vertical line is the lowest price during that time interval.
      • Applied dates and times. A bar chart can be customized to focus on any range of specific dates, times or periods.
      • Bar color. The bar’s color indicates whether the price increased or decreased during the interval. The colors are customizable, but frequently the bar is red if the price went down and green if it went up — though this is not necessarily the default.
      • Trading volume. Trading volume may be indicated as bars at the bottom of the graph — the higher the bar, the more popular the shares are for your selected timeframe.

How to read a candlestick chart

Another option for analyzing stocks is to use a candlestick chart. Candlestick charts are the same as bar charts, but instead of a single vertical line, candlestick charts have a rectangular center with lines that protrude from the top and bottom. The rectangle represents the difference between the stock’s open price and closing price for that time interval.

candlestick chart

Candlestick charts also allow you to select between hollow and filled candlesticks. If the candlestick body is hollow, the stock’s current closing price is greater than the stock’s open price. If the body is filled in with any color, the stock’s current closing price is less than the stock’s open price.

The same goes for red and green candlesticks. If the candlestick is red, the closing price has fallen, and if it’s green, the closing price has risen.

Basic stock chart terms

There are several terms worth learning before you dive into how to read a stock chart:

OpenThe opening price of the stock during a given period
HighThe highest price of the stock during a given period
LowThe lowest price of the stock during a given period
Previous closeThe last price the stock traded for at the end of the previous day
Market capThe total value of all the company’s stock; calculated as stock price multiplied by number of outstanding shares
PE ratioPrice to earnings ratio; an evaluation metric calculated as stock price per share divided by earnings per share
Dividend yieldHow much a company pays in dividends relative to its stock price; calculated as dividend divided by stock price
52-week highThe highest price the stock traded for in the past year
52-week lowThe lowest price the stock traded for in the past year

Advanced stock chart terms

More complex stock charts may include some or all of the following terms:

      • Bid and ask. The bid price is what buyers are willing to pay. The ask price is what sellers are willing to sell the stock for.
      • Volume. How many shares of a given stock have traded in a given period.
      • Average volume. A measurement of how much a given stock has traded over a specified period.
      • Day’s range. The difference between the high and low prices of the day.
      • Beta. The measurement of a stock’s volatility compared to the overall market. Riskier, more volatile stocks have a beta greater than 1.0. Safer, lower volatility stocks have a beta of less than 1.0. This isn’t found on a stock chart, but it’s important information to seek out.
      • Earnings per share. A calculation of the net income earned for each share of stock.
      • Earnings date. The next date the company publicly reports earnings.
      • Ex-dividend date. A record-keeping date to determine which shareholders receive dividends.
      • 1-year target estimate. An analyst’s prediction of what the stock’s price will be in one year. This prediction won’t be featured on a stock chart, but you can find it near the stock chart.

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Bottom line

There’s a lot of information packed into a single stock chart. Although past data doesn’t guarantee anything about the stock’s future price, you can use the information to make better-informed stock trading decisions.

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