How to Read Stock Charts for Beginners Leave a comment

how to read stock charts

That means that Bank of America shares have traded hands over 24 million times just today, and the day is not even halfway over yet. Bar charts are particularly useful for analyzing trend reversals and monitoring how volatile some security is. If most of the vertical lines are very long, then that means that the stock value can fluctuate wildly throughout the day. Conversely, small vertical lines mean the stock is relatively stable over that period. The trend line represents the current value of individual stock in the company.

The price/earnings (P/E) ratio is equal to the stock price divided by earnings per share. The ratio shows how many multiples of the annual earnings you pay for the stock. In a stock chart, the P/E will track the stock price (because it is derived from it) until a new quarterly report comes out and the P/E changes with new information.

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A common reversal amount is three times the box size, for instance. An X is marked when the price increases by a set amount and an O is marked when it decreases by a set amount. The set amount is called the “box size.” The amount of the box size differed depending on the stock and the individual investor’s preference. This chart represents the stock price for Microsoft between 2014 and 2021.

  • The length of the bar shows how much the stock moved over that period.
  • That is a typical trading pattern for stocks that are held by big institutional investors (mutual funds, pension funds, etc.).
  • In the past, using technical indicators would require you to go in and crunch the numbers yourself.
  • With less trading activity (such as during after-hours trading or trading in less popular stocks), bid-ask spreads may be wider.

However, learning to read a stock chart will definitely help turn the odds of being a successful stock market investor in your favor. There is virtually an endless list of technical indicators for traders to choose from in analyzing a chart. Experiment with various indicators to discover the ones that work best for your particular style of trading, and as applied to the specific stocks that you trade.

Line Charts

In the past, using technical indicators would require you to go in and crunch the numbers yourself. You would have to gather pricing data, perform the calculations by hand, and then interpret your results. Volume is an important technical indicator as it gives an indication of how much stock is going to change in value. The majority of stock market transactions are performed by big investment firms like investment banks, mutual fund managers, ETF fund managers, and other large institutional traders. Using daily and weekly charts together helps you distinguish between normal price changes and a true shift in trend.

This is that blue line you see every time you hear about a stock — it’s either going up or down, right? While the trendline seems like common sense, there are a few things I want to call out so you can understand it in a little more detail. Here are the four key data points you need to understand in order to fully leverage the power of a stock chart. As you become more experienced, you will develop many questions to ask yourself as you analyze different charts. At this point in your career, you should consider, at a minimum, these questions as you’re reading and evaluating a chart.

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