Beginner Investors’ Guide to Reading Stock Charts

A stock chart is a picture of the ups and downs of stock price movements over a certain period of time. This depiction of stock price values ​​can be daily, weekly, monthly, to yearly. This stock chart is used by investors to analyze data from stock price values. 

In stock charts, you will see the movement of stock prices very clearly. Then, you can see the pattern, when it will go up and down. You can match it to market conditions that occurred at that time.

That way, you can predict what will happen in the future. When the analysis carried out says the trend is going down, it means it’s time to prepare additional capital to buy shares. If the trend is up, you can immediately sell the stock to get a return from capital gains .

Types of Stock Charts to Know

There are several types of stock charts that are commonly used by investors. Each type certainly has advantages and disadvantages of each. You can freely choose which chart is more comfortable when you want to analyze stocks.

Here are the types of stock charts as well as their explanations.

1. Line chart stock chart

You could say, line charts are the stock charts that are most preferred by beginners. The reason is, this graph is fairly easy to read. You can familiarize yourself with these stock charts before moving on to more complicated types

The line chart has the form of an up-and-down line in a certain period. Later, the line will indicate the value of the stock price until the closing per day.

Unfortunately, you will not get more detailed information. The line chart does not provide information on the opening price, the lowest price, or the highest price. This sometimes makes investors or traders need to complete the information by reading other stock charts.

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2. Stock chart bar chart

A bar chart is a type of stock chart that displays fairly complete stock price info. You will get the opening price ( opening price ), the highest price ( high ), the lowest price ( low ), and the closing price ( closing price ).

How to read it is not too difficult. The bar chart is depicted in two colors, namely green and red. The green bar indicates that the closing price of the stock at a certain interval is higher than the opening price.

On the other hand, a red bar indicates that the closing price of the stock was lower than the opening price. This means that there is a decrease in stock prices that occur at certain time intervals.

You will also notice that there are small scribbles on the sides and right of the bar graph. The scribble indicates stock price info at the opening. The doodle on the right indicates the closing stock price info.

You can also get information on the highest and lowest stock prices from the end of the bar graph. The top part shows the highest stock price, while the lower end shows the lowest stock price.

The way to read a stock bar chart is to look at the distance between the open and close. If the closing price is well above the opening price, buyers of the stock are very active in that interval. There could be more purchases in the coming period.

When more bars are green or black, it means the trend is up. On the other hand, the red bars indicate the trend is going down.

3. Candlestick chart stock charts

Candlestick charts are the type of stock chart that is most widely used by investors and stock traders in reading stock market movements. As the name suggests, this stock chart is shaped like a long candle lined together.

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This stock is also very complete in conveying information. You can find information on the highest price, lowest price, opening price, and closing price within a certain period.

There are four colors in the candlestick chart that you need to understand. The red color indicates a decline in stock prices ( bearish ) which means the close is lower than the open. The green color indicates an increase in stock prices ( bullish ). The same thing happened to black for bearish and white for bullish .

Candlestick charts have three parts to consider. Here’s an explanation of each part of the graph:

  • Body candles

This section will show the opening and closing prices at one interval. You can find out how far the stock price moves. Body candle is rectangular with different colors.

The longer the candle , the higher the activity of buying and selling shares. Conversely, a short candle body indicates minimal price movement and frequent consolidation of the stock price.

  • Upper shadow

This section shows the highest price of the issuer of shares at a certain time interval. The longer the shadow tail , the closer the closing price is to the opening price. The upper tail which is longer than the lower tail also indicates that sellers are more dominant in pushing prices down. However, keep bidding at the highest price.

  • lower shadow

Opposite of the upper axis, the lower shadow indicates the lowest price information of a stock. The shorter the tail, the less the price changes. A shorter lower tail indicates that buyers are more dominant in the trading session .

The biggest drawback of this candlestick chart is that it has a lot of patterns. As an investor or stock trader , you need to memorize hundreds of patterns to perform analysis.

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Tips for Reading Stock Charts

Tips for reading stock charts (123rf)

It’s certainly not an easy thing to read a chart for the first time. You can follow the tips below to be able to read stock charts better:

1. Familiarize yourself with stock charts

When you decide to jump into the world of stocks, of course you have to get used to all the things in it. One of them with stock charts. This means that you need to keep an eye on all stock charts every day. By making friends with charts every day, you will get used to them and it will be easier to read them.

2. Do a personal analysis

Try doing some analysis with just the knowledge you have. Then, equate it with what happens in the stock market. Judge for yourself how much your prediction is in accordance with reality.

3. Ask the experts

Studying with the experts is certainly the most appropriate way to start understanding the world of stocks. You can attend training, webinars, or special classes for stock investors. Of course there are costs you have to pay. However, this can be an investment in knowledge that you will use to get a return one day.

That’s how to read stock charts based on their types. Start sharpening yourself to analyze stock movements using the right charts. Don’t forget to keep diversifying your investment portfolio to reduce the risk.

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