How to Read Stock Charts Like a Pro

A stock chart is a snapshot of recent performance.
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Reading a stock chart like the pros do isn’t hard once you get over being confused by all the numbers, graphs and squiggly lines. Stock charts provide you with a graphic summary of a stock’s recent behavior and are mostly used by short-term traders. With a little practice, you’ll be able to make an educated guess as to what the stock will do next, just like the pros do.

Top of the Chart

Look at the very top of a stock chart on the far left. You’ll see the ticker symbol for the chart, followed by the date and the high, low and closing prices for that day. The volume of shares traded is also listed. On the next line down is the moving average, which looks something like this: MA (45) 19.35. A moving average tells you the average per share price over a given period. In this example, the average price of the stock over the previous 45 days was $19.35.

Price Graph

The heart of a stock chart is the graph of stock prices located in the middle of the page. Sometimes this is a line graph, but it may be made up of short bars. These bars, called candlesticks, give you a lot of information. The top of each bar is the stock’s daily high, and the bottom is the low. A solid color bar indicates the stock lost money, while a clear or white bar tells you the stock went up.

Price Trends

If the graph is rising toward the upper right of the page, the stock is in an upward trend. If it’s pointed toward the lower right, the price trend is down. If the graph isn’t going much of anywhere, the stock is said to be in a period of consolidation. That means market factors aren’t pushing the stock in any particular direction at the moment.

Support and Resistance

Sometimes you’ll notice on the chart that a stock drops close to a particular price several times and then rebounds. The low price is called a price support. In the opposite direction, the price per share may go up to a given level and then drop back down each time. That's called a price resistance. Support and resistance levels are worth watching because, when a stock finally breaks through one, it often signals a major price move. For example, when a stock finally cracks a resistance level, there’s a good chance it will keep climbing.

Volume

At the bottom of the stock chart is a bar graph showing the trading volume. The height of the bar tells you the number of shares sold that day. Trading volume can provide important clues about what’s going on with the stock. For example, if a stock is in an upward trend and volume is higher than usual for that stock, it hints there’s a lot of demand for the shares and investors are bidding the price up. When the volume starts to drop off, it indicates lower demand and the upward trend in the price may be about to reverse direction and fall.

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