How to read stock charts for trading?

It is impossible today to speculate online on a stock exchange asset without a perfect mastery of the graphic analysis. The interpretation of these charts is indeed essential to any technical analysis of the prices. If understanding these charts still seems too complicated to you, this article is going to help you to acquire some useful knowledge.  

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How to read stock charts for trading?

The importance of stock charts :

No matter what trading platform or stock market information site you use, you will always come across stock market charts. This proliferation of charts is actually due to the importance of their interpretation to understand the dynamics that push an asset up or down. A price alone expressed at a given moment does not indeed give any indication on the trend. However, the same price, positioned on a chart, allows us to know the trend, and even the longer term trends.

Before making any investment in the stock market, it is therefore advisable to observe the historical price data of the asset concerned in order to know how the issuing company has performed over the previous years, months or weeks.

Clearly, the analysis of the stock exchange charts is the very base of the technical analysis and thus allows to take the best decisions at the best moments by being based on concrete facts and observed by the past.

 

Continuous graphics:

The continuous chart is probably the most accessible of all chart types. It is therefore ideal for beginners. They are called this for the simple reason that the curve they display is continuous.

The horizontal axis of the chart shows the time and the vertical axis shows the price level.

This continuous curve represents the closing prices of the tracked asset for each day or hour. These prices are then linked together, forming a continuous curve.

 

Bar graphs:

Bar charts allow the investor to see several pieces of data about the asset's price at the same time. In addition to the closing price, they also show the high and low of the session as well as the opening price.

The top of each bar is the high and the bottom is the low. The horizontal line to the right of the bar indicates the closing price and the line to the left indicates the opening price.

 

Japanese candlestick charts:

This display mode originally comes from Japan but has been adapted to most financial markets because of the quality and quantity of indicators. Here, it is no longer bars, but candlesticks that are displayed. These candles indicate the same elements as the bars, i.e. the opening price, the closing price, the highest and the lowest price reached.

But this display also allows another analysis criterion to be taken into account. Indeed, according to the color of the candle displayed, it is possible to know if the price of the asset has risen during this period, in which case the candle is white or green, or has fallen, in which case the candle is black or red.

 

How to read volumes on stock charts?

Most of the stock exchange graphs that we have presented to you also allow you to know the exchanged volumes. These volumes are expressed by means of sticks located at the bottom of the chart with a different scale from that of the times of course.

 

The elements to be used in priority when analyzing stock market charts :

When you will realize the technical analysis of an asset on a stock exchange chart, there are certain elements that you must imperatively know and be able to locate and analyze at any time. We propose you to discover them here with some detailed explanations.

Technical support and resistance points : Of course, the so-called technical support and resistance levels are graphic indicators to know because they are essential to any good technical analysis. The support level is the level at which the price of an asset is so low that it can be interesting for investors to buy. It can be seen graphically as a straight line that links the various lowest levels historically reached by the price on the general curve. The fact that this support is holding is often a sign of an upward trend reversal and its downward break often indicates a continuation of the downward trend. As for the resistance level, this is the level at which the price of an asset becomes so expensive that investors are likely to take their gains. It is visually identified on charts as a straight line that connects the historical highs. Unlike support, an upward break of a resistance level will indicate a continuation of the uptrend, while a hold at this level will often indicate an imminent decline. Note here that the more points the support or resistance line contains, the stronger these levels will be.

Moving averages : Moving averages are among the most widely used chart indicators for determining the direction and strength of a trend. They represent the average price of a security over a given period. Each investor can of course customize the period to be studied according to his needs and the trading strategy he is implementing. Moving averages make it easier and more intuitive to read and interpret stock market charts because they smooth out the curves by eliminating the most abrupt corrective movements of an asset. Note also that the moving averages are frequently used in the calculation of other technical indicators such as the MACD or the Bollinger Bands, hence the importance of knowing them.

The various easily spotted graphic figures : Simply by observing a stock exchange chart, you can spot some technical figures that the specialists of this analysis call chartist figures. These figures which are based on frequent and recurring variations of the price of an asset make account of the probability of a precise situation and thus allow to anticipate a movement. There are three main patterns to know absolutely. The first is the reversal pattern, which occurs when the price trend of an asset or a market changes direction. Visually, it takes the form of what is called a bevel, a shoulder head or a diamond. Another common type of pattern is the continuation pattern which, as the name suggests, shows that the current trend is consolidating. Visually, it takes the form of what is called a channel, triangle or flag. Finally, the last figure to know to succeed in your chart analysis is the gap which corresponds to a hole in the quotation of an asset. It is a period during which no trade is made on a given security. Note that this figure can only be observed using Japanese candlesticks or bar charts.

 

Customizable charts from online trading platforms:

Let's end this article with some details about the possibility that current online trading platforms give you to access to extremely modern, powerful but also customizable stock market charts. Indeed, these charts can be manipulated as you wish and offer very practical features such as :

  • The ability to display multiple technical indicators simultaneously on a single chart for a given asset so that you can get multiple signals at a glance.
  • The ability to place orders directly from the price chart of an asset or to place stop or limit orders to secure your positions.
  • The possibility to choose between different display types or to change the period at any time.

As you can see, the possibilities offered by these online stock market charts are very numerous and it would be a shame to do without them. Let us also recall that if the graphic analysis remains an essential analysis before any position taking on the market, you must use it in parallel of a good fundamental analysis only in order to maximize your chances and the relevance of the obtained signals.

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