understanding the basics of reading a
stock chart is a useful skill that can
help in many scenarios now there are
many different types of stock charts and
each have their own nuances but broadly
speaking they often tell a similar story
let's take a look at some of the more
popular versions the most common chart
is the line chart it's important to
remember that charts show where a stock
has been from a price perspective and
people often try to use that information
to help predict where it will go notice
two fundamental details that will remain
the same for all chart types first is
down here on the x-axis time will always
be down here and you can get a stock
chart for almost any time period so
always try to notice how long the chart
is that you're looking at on the left
here this is the y-axis this is where
the price of the stock goes so what
about the line itself what does it tell
us well the line itself is a series of
many different closing prices of the
stock so imagine the line was not a line
and it was instead a series of dots like
this well each dot represents what price
to stock closed at on each day so on
this day the stock closed at 107 dollars
and 43 cents when we zoom back out you
can see that when we connect these dots
what you end up with is the line chart
so what does this line chart tell us
well we know that the price of the stock
is higher today than it was at the start
of the chart which is about a year ago
so what you're looking for when you're
reading a stock chart is trends or
patterns in this particular chart we can
see that the stock is gradually trended
higher when a stock is trending higher
you can often see a stock making higher
highs and higher lows
they call this a channel well now let's
switch chart types from a line chart to
a candlestick chart so typically in a
line chart the only piece of information
you get is the closing price but with
this char
they show you a lot more than that this
line here this is where the stock opened
on this particular day you can see the
vertical line that extends above it well
this is the high for the day and as you
may guess the line that extends down
here this is the low for the day now for
candlestick charts when this color here
is filled in in this case it's black
sometimes it might be red or some other
color that means that opens up here and
close down here if it were white it
would have opened down here and closed
up here so clearing all this away what
does this line tell us we know the stock
was up for the day because this line is
higher than yesterday's line but it
seems that the stock opened up here but
at the end of the day it looks like it
closed a bit lower than when the stock
opened but still it was up from
yesterday and if we zoom back out we can
see that the overall trend is similar to
the line chart now outside of the
general direction of the chart and
trying to identify trends or channels it
can also be interesting to look for what
is known as resistance levels and
support levels in this chart here we can
see a resistance level up here in fact
we would call this one a triple top one
two three and down here is a support
line in this case you would call this a
double bottom one two so psychologically
speaking here is the concept as you can
see by this early uptrend we know that
more people are buying than there are
that are selling we know this because
the stock is trending higher had there
been more sellers than buyers then the
stock would have fallen like it did in
this area well in this area here when
people bought they bought because they
believed that a trend would stay in
place but it doesn't take long for them
to start seeing losses the stock falls
all the way to down here which at that
time the chart looks like this and it
once again started moving higher and
those buyers that bought it up there are
just happy to start seeing the stock
move higher again well when it gets back
to the area where they bought it the
stock is really taking them for a ride
they're just happy to break even and
they sell their stock well as these
sellers come into the market the stock
begins to fall and
those that were interested in buying the
stock when was back down here well
they're just happy that it's coming back
to that level so when it gets close a
bunch of buyers flood into the market
and the stock rallies all the way back
to the old highs and the whole thing
starts over again those that bought up
here are just happy to break even and
they sell in fact many that bought down
here are looking to sell at the
previously old high and that is how you
end up with a resistance level on the
upside and down here a support level
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