Trend lines can be drawn between those highs and lows, and they can provide technical analysts with a quick visual assessment of whether a trend exists and to what degree. Price trends are directional movements that consist of a set of higher highs and higher lows in a stock’s price.
Reading trend lines is a way to assess whether a price trend exists for a particular stock.
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An essential component of understanding how to read stock charts is knowing which chart you prefer. However, it is worth researching to help boost your forecasting abilities.Īfter reviewing the different types of stock charts, one thing becomes clear. Interpreting candlestick charts according to the traditional Japanese system evolved over centuries of market observation lies outside the scope of this introduction.
The candle’s “body” shows the range of the stock price from open to close, while 2 wicks extend from the top and bottom of the candle’s body showing the upper and lower levels respectively of the stock’s price range. White and black or green and red are the most popular color schemes, with white or green for up periods and black or red for down periods. The color of each candlestick indicates whether the stock’s price closed up or down for the period. A horizontal “flag” is then drawn to the left and to the right at the opening and closing stock price levels respectively.Ĭandlestick charts: Invented in Japan, the candlestick chart is packed with even more information than a bar chart. Each price point is connected to adjacent prices with lines.īar charts: The more sophisticated bar chart shows the range of the stock for the period charted by drawing a vertical line or “bar” from its high to its low price. Line charts: This straightforward type of chart shows the price, as, you guessed it, a line, at any given point during its trading day, typically the closing price, with a single point. Most stock charts depict the price of a stock in these basic ways: The circled E and D letters along the bottom represent the ex-dividend and dividend payment each quarter for the stock. The trading volume figures per period appear in light red and green along the bottom of the chart, with their 20-period MA shown in orange. It includes a 20-period MA drawn in red and superimposed over the price action, as well as blue dots from the parabolic SAR indicator that gives trading signals intended to reflect short-term accumulation and distribution activity in the stock. This example of a stock chart depicts the price of Apple Inc. A stock chart will often include technical indicators in a box below the price action as well as price action overlays like a moving average (MA) of the price taken over a certain number of days. The chart’s vertical or Y-axis shows the price level of the stock that increases when looking upward and decreases when looking downward. The chart’s horizontal or X-axis shows the dates of price observations in an order further from the present as you move your eyes left. At the same time, it can also include information such as volume and the company’s financial information. It’s generally drawn on a grid and provides detail on the current price and historical price changes.
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