Stock Charts, Understanding the Basics

Stock chart education is very important for investors that want to perform technical analysis. By understanding price patterns traders have an edge at predicting where the stock is going next.

2013 UPDATE: Took 6 years, but you can now learn stock charts with my 156 interactive guide, The Interactive Guide to Technical Analysis.

To make this simple, I have taken a stock chart and labeled the main parts that we will take note of. Below the chart I will explain these parts and what they mean when it comes to reading stock charts. So first let's take a look at the chart example which is of the NASDAQ Composite:

Let's break down these points:

  1. Chart Identification - Every chart is labeled and tells you what exactly you are looking at. So, if we look to the left of one we can see very clearly that we are looking at a chart of $COMPQ (Nasdaq Composite) INDX. The $COMPQ is the ticker symbol of the index. Just like Google has a ticker of GOOG, and Microsoft has a ticker of MSFT.
  2. Summary Key - The first number displays 2303.54 which is the last price of the index. To left of this number it says "(daily)", which means we are looking at a DAILY chart of the index. You can view charts on weekly and even monthly views. Below this we can see the blue and red lines (50 and 200) MAs. These are the price moving averages which I will explain more in point #4. Bottom line is that the summary key tells us the important numbers from the stock chart we are viewing.
  3. Time Period - The X axis always displays the time period. If you view the dates left to right you will find that we are viewing a chart of the months of April, May, June, and July.
  4. Moving Averages - Moving averages are a form of technical analysis that help identify support and resistance on a stock chart. On this chart the red line is the 200 day moving average, and the blue is the 50 day moving average.
  5. Volume - Volume is extremely important as it helps determine market momentum. Each bar represents one day, and the red line going through the tops is the average volume over the last xx days (in this case 60). So, the taller the volume bar, the more shares of stock that were traded that day.
  6. Daily Trade Range - Just like volume, each red or black vertical line on the chart represents one independent trading day. If the bar is red, that means the stock or in this case the index was DOWN overall on the day compared to the previous day. Black bars mean that the stock was even or UP on the day compared to the previous day.

Navigation:

Make $42 Million Trading Stocks! Learn technical analysis with Dan Zanger, World Record Holder who turned $15,000 into $42 million. Click here to learn how.

Comments

  1. Posted by Kavit Haria on September 8, 2007 at 5:29 pm

    Thanks for this article. You've taught me very easily how to read a chart and I've never known before.

    Also, you write very well. Keep it up!

  2. Posted by Cody Staub on October 2, 2007 at 3:20 pm

    Hmm...I think I got this all right, but quick question. Does the blue line also represent a MA? I read your explanation of MAs but I still don't think I get it.

    So if I'm reading this right...the MA up until March is supporting the stock...and through March is resistance?

    So much to take in! haha...I'll get it though.

  3. Posted by Blain on October 2, 2007 at 3:49 pm

    Yup, right on actually! :grin:

  4. Posted by Francis on December 11, 2009 at 5:38 pm

    I will post a link to this blog on my website. I am certain my readers will find this post very informative.

Trackbacks

  1. [...] Stock Chart Basics(Stocktrading101) The basics of understanding charts, just how the heck do you read these things?! Well, after last week dipping into the basics behind making an actual online stock trade, market orders, and limit orders, I figure this week we could take our investor education to a new area, stock charts! [...]

  2. [...] Alright, investor education is going to a new level, I am going to TEST YOUR KNOWLEDGE of the basics that we learned yesterday on stock charts. [...]

  3. [...] Stock Chart, Understanding the Basics from Stock Trading 101 [...]

  4. [...] And there you have it, right smack dab in the middle. Do any of the other terms ring a bell to ya? I have covered a few of them here on the blog! Let’s see… Volume, Dividend yield, and stock charts. [...]

  5. [...] Trading 101 shares with us Stock Charts, Understanding the Basics. The basics of understanding charts, just how the heck do you read these things?! Well, after last [...]

  6. [...] you are looking at a stock chart the way we are doing here, defining specific points or areas, we are using technical analysis. We [...]

  7. [...] been watching it for months and it just can’t get past that $30 mark. I then take a look at a stock chart and realize, “hey, on those four tries the stock only traded half its average volume, no [...]

  8. [...] the art of technical analysis, I get to introduce you guys to more and more patterns to find on stock charts. The pattern we will be exploring here is called an ascending [...]

  9. [...] Stock Charts, Understanding the Basics [...]

  10. [...] Stock Charts, Understanding the Basics [...]

  11. [...] Stock Charts, Understanding the Basics [...]

  12. [...] Help: The concept for this is very simple as it using basic technical analysis on stock charts. If you need help understanding and reading stock charts than read the post here first, and if [...]

  13. [...] following stock chart of Google (GOOG) offers a great example of a symmetrical triangle. Symmetrical Triangles are a [...]