Stock Charts Explained by TechniTrader
Stock Charts are your window into the world of investing. Stock charts tell you where a stock’s price has been, where it is now, and in turn, where it is most likely to go. The average independent investor does not have the same access to information as the Institutional Investors of the market who control 80% of the market’s activity, so the ability to read stock charts to uncover the professionals’ interest in a stock is key to successful investing.
Regardless of your trading style, whether it is intraday, day, velocity, swing, position trading, or long-term investing, learning how to read Charts is a critical skill. When you can interpret a Chart correctly, you will be able to anticipate the direction the stock will take, how long the run will sustain, and how fast the stock will move.
With this information, you can determine the correct trading style to use, the strategy to use, the correct entry price, stop-loss placement, and your exit strategy before you ever enter a stock.
Stock charts come in many forms. Some of the most popular are:
- Line Charts
- Bar Charts
- Candlestick Charts
Line Charts use the open and close prices of a period, which can be any timeframe from a 1-minute period all the way up to a 3-month or quarterly period. The charting program draws a line from the open price to the close price.
This a line chart set with a monthly period:
Bar Charts show the open and close prices of a stock during any period with ticks to the left and right on a line.
Here is a daily chart with bars:
Here is the same stock’s daily chart with candlesticks:
In the chart above, white candles show that price moved up on a particular day and black candles show that price moved down on other days. Buy signals and sell signals are made up of particular combinations of candlestick patterns.
Stock Indicators are also plotted on stock charts to give the chartist a view of what is going on beneath the price patterns, such as how much volume is moving into a stock at a certain price level. By combining price study in candlestick form with a group of leading indicators to study, an investor or trader can better anticipate which way a stock’s price will move.