If you are looking to invest in stocks then learning how to read a stock chart is essential! At first, stock charts can be intimidating, but once you get the hang of them, they are are actually very easy to read and can provide you with a lot of insights. Just about every serious investor refers to stock charts frequently, so if you want to be a serious investor you should invest the time to learn how to read a stock chart.
So read on for a quick and dirty introduction to a few different types of charts and how you can read them. We won’t lie, there is no way we can cover every single type of chart, but we can provide you with a lot of useful information and insights. Consider this the first step to becoming an expert at reading the various types of charts and graphs that investors use!
Lighting the way with Candlestick Charts
Many investors prefer candlestick charts to any other type of chart. Candlestick charts provide a lot of information in a very small space. As such, they are very useful to investors, most of whom are short on time but need a lot of information.
A candlestick chart will show you the opening price of a stock, the high of a stock’s price in a trading day (or other given period of time), the low price, and also the closing price. The individual icons in a candlestick chart resembles a candle, loosely speaking, hence the name.
If you look at a candlestick chart, you’ll see a small box. The box will usually be either black or white. Above and below the box you should see two lines, these refer to the upper and lower shadow. The upper shadow will correspond with the high price while the lower candle will correlate with the low price of a given stock.
As we mentioned, there will be a black or white box. The outside lines on the top and bottom of the box will refer to the opening and closing price for the stock. If the box is white, the bottom line of the box will refer to the open and the top line will refer to the closing price. A white box means that the stock’s price rose.
A black box, on the other hand, will show that the stock’s price decline. The top line of the box will refer to the opening price, while the bottom line will refer to the stock’s closing price. If you invest in a stock, you generally want to see white boxes. If you short-sell a stock, on the other hand, you want to see black boxes.
The Basics with Traditional Bar Charts
Traditional bar charts will display the same information as a candlestick chart, but are often harder to read, at least in the opinion of many investors and traders. A traditional bar chart will show a simple line for a given day or trading period. While many people prefer candlesticks, traditional bar charts are still useful stock charts.
The top of the line will refer to the highest price for the trading period, the bottom of the line will refer to the lowest price. There will also be two small horizontal lines, one branching off to the left, the other branching off to the right. The line branching to the left will show the opening price, while the line branching to the right will show the closing price.
There are many other types of charts and graphs in the investing world. Charts can give you a lot of information in a very short period of time. A quick glance at a chart can tell you a lot about the stock in question, so make sure you learn how to read stock charts.