Learn How To Read Stock Charts Step By Step

  • Learning how to read stock charts is very easy and can help you better analyze the market
  • There are different types of charts available giving you different types of information about the market
  • You can use different timeframes to see the price movements in greater detail
  • Traders can use indicators on charts to predict the possible price movements

How To Read Stocks – Use Indicators

Reading stock charts explained: Reading stock charts can help you understand the market a lot better

how to read chartsWhile trading stocks, you will be required to follow different types of indicators and analyze data to decide what positions you have to open. One of the things that you should take your type to learn is to know how to read stock charts.

There are different types of charts available in the market and all of them work differently. While some of them offer you only general information about the price movements of certain stocks, others can give you a more detailed insight into the price movements in the market.

Charts also help you to use indicators that will assist you in the decision-making process. There are numerous things that you can learn from charts, including P/E ratio, EPS ratio, open and close prices, and many others.

In this guide to reading stock charts, we will discover all the different ways you can use stock charts to better analyze the market.

P/E Ratio

In the stock trading market, one of the most important pieces of information that indicates how much it is worth to invest in any of the stocks is the P/E ratio. It is a classic measure of any asset value.

It indicates how many years of profits it takes to recoup an investment in the stock. The average level of the P/E ratio in the modern market is about 19.6. The P/E ratio of a certain stock can be used by traders to determine overvalued or undervalued stocks in the market. In the stock trading market, P/E ratios are seen as one of the main indicators of fundamental analysis and are very commonly used by traders.

The P/E ratio is the ratio of the stock price divided by the firm’s yearly earnings per share. This ratio is calculated by using the last reported actual earnings of the company. But, thanks to the fact that you can read a stock graph, you do not have to calculate the ratio manually. There are numerous indicators available in the market that do the hard job for you.

EPS Ratio

how stock charts are readAnother very important measurement in the market that a lot of stock traders are using is the earnings per share, EPS, ratio. This ratio measures how many dollars of net income have been earned by each share of the common stock during a specified period.

This ratio is calculated by dividing the net income by the number of shares available in the market. This can be used to measure the profitability of the company shares you are planning to invest in.

If you manage to learn how to read a stock chart, you can use indicators created for trading platforms to automatically determine the EPS ratio of the stock that you are planning to trade. This indicator, much like most of the indicators in the market, can be applied directly to the chart and can be very easy and useful for traders in the stock market while deciding whether or not you should invest in a certain stock.

Open & Close Prices

There are numerous different types of charts available in the stock trading market. While some only give you general information about the direction of the market, others can provide you with much more detailed information about the trading market and the price movements in the market.

Among the types of charts that give you information about the open and close prices of the charts are Heiken Ashi, regular bar chart, candlestick charts, and many others. By understanding how to read charts like these, you can better plan your positions in the market.

These chart types are very useful because they can show traders increasing or decreasing momentum. For example, when the open and close are far apart from each other, it shows strong momentum, and when they are close together, it indicates that there is a weak momentum in the market.

In addition to these two price levels, the above-mentioned chart types are also showing you information about the high and low prices of the day for the asset you are trading. This information is very useful when it comes to assessing volatility in the market.

These types of charts can be applied to any timeframe, making sure to offer you a high level of flexibility. Understanding stock market numbers and the changes that are happening in the market are very easy with this type of chart and offer traders a very detailed and good insight into the stock trading market.

Understanding such detailed information can be very important for traders using any strategy. This is one of the main reasons why you should learn how to read stock trading charts.

Support & Resistance (Yearly, Monthly, Weekly, Daily)

One of the biggest advantages of knowing reading stock charts is that you will be able to identify support and resistance levels easier. These terms are used when traders refer to certain price levels on the chart that tend to act as barriers that prevent prices from pushing a certain level.

Technical analysts use support and resistance levels to identify the price points that basically act as “stop signs” for the prices to go beyond or below a certain level. Support is a price level where a downtrend is expected to pause, while resistance is a price level where the uptrend is expected to pause. These areas on the charts can be identified using trendlines and moving averages.

For example, below, you can see a Candlestick Chart, where you can easily identify support & resistance levels. stock chart

There are many characteristics of support and resistance levels that can help you identify them on the chart. One of them is that in most cases, stock prices tend to have a difficult time moving beyond a round number, such as $100, for example.

The majority of traders are using moving averages and other technical indicators to predict future short-term momentum. Among the indicators that you can use to determine potential support/resistance levels are Fibonacci retracement, volume indicators, and many others.

Yearly, Monthly, Weekly, And Daily Highs And Lows

Learning how to read a chart for stocks correctly is the foundation of all technical analysis. Reading the charts incorrectly means that all analysis done as a result of the information gathered from the chart is incorrect.

The simplest way to read the chart is to identify the cycles on the chart by finding its highs and lows. Depending on the type of trader you are, you will be looking for different types of highs and lows in the market.

stock trading chart guideIf you are a short-term investor who wants to make profits in the short term, you will be looking for the highs and lows on the chart that shows price movements in a short period. On the other hand, as a long-term investor, you might be looking at the chart in a bigger picture and you are more likely to use longer time frames. Identifying these levels is one of the best ways to read stock charts and use this information for your positions.

There are several rules that can help you better identify and confirm lows and highs in the chart. One of the most important things for this is to know how to identify cycles. In most cases, one complete cycle contains a minimum of 5 bars. Within the cycle, there might be any amount of highs and lows.

A very important rule to keep in mind is that a lot can only be confirmed in the chart if it is followed by two high bars. The same is true for identifying high – if followed by two low bars, a high can be identified.

The best thing about stock trading charts is that most of them are easily customizable and offer you the ability to use them according to your needs. They offer you very versatile timeframes, which means that you can analyze the market using yearly, monthly, weekly, daily, and hourly timeframes, which can give you great control.

Last Year’s Dividend Yield

When learning how to read stock prices and how to understand them, one of the most important things to think about is the dividend yield. The dividend yield is expressed as a percentage and represents a financial ratio that shows how much dividends the company pays each year compared to its stock price.

This can help you decide which company stocks might be a better option for investment. In most cases, mature and already successful companies are more likely to pay higher dividends.

There are many charts that offer you information about the dividend paid by the company over the years. However, keep in mind that just because the dividend yield is high does not mean that the investment opportunity is attractive. The dividend yield can be increased because of numerous factors, one of them being the declining stock price.

Observe Trend Lines

When learning how to read market data, one of the most important things that you should be looking at on the chart is the trend lines. These lines are easily recognizable that traders draw on their charts to connect different prices together.

The resulting line gives traders an idea about the direction the price might move. A trend line is drawn over pivot heights and under the pivot lows and it shows the prevailing direction of price. They simply are visual representations of support and resistance levels on the chart.

To be able to create a trend line, there must be at least two points on the chart that you can use. You can use different types of time frames on the chart depending on the trading strategy that you are using. You can use hourly, daily, weekly, or monthly charts for this.

What Did We Learn From This Reading Stock Charts Guide?

Stock charts provide traders with historical data of the price movements of assets. There are several types of them.

Among the most popular types of charts are the candlestick, Heiken Ashi, bars, lines, and many other types of charts.

Learning how to read a stock chart can be very helpful for stock traders to better understand the price movements in the market.

Indicators can also be added to the stock charts to better analyze the price movements in the market.

Common Questions On How To Read A Chart For Stocks

How Do You Read A Stock Chart For Beginners?

The first step is to learn to identify the chart. This means that you should know how to differentiate different types of charts. Then, you should learn what different timeframes are and how to set them. Stock charts in simple terms are graphs that show you the price of a stock over a specific period of time. More advanced stock charts are capable of showing additional data.

How Do You Read A Stock Price?

Reading stock prices is very simple. All you need to do is to open a chart and you will see the current price of the stock. However, this is not all. You can also see the historical data of the price movements of a certain stock using the stock trading charts. This way, you will be able to better analyze the market. By using technical indicators, you can go further into analysis and learn about the possible direction the prices could go.

How Do You Read Red And Green Stock Charts?

Reading green and red charts is possibly the easiest thing to do with charts. A very simple rule is that green boxes or bodies in the chart show that the price is increasing, and red shows that the price is decreasing. In most cases, you can set the colors according to your preferences and change the way the chart looks.