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:
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- Example 15: General Motors (GM)
- Example 14: Google (GOOG)
- Example 13: Apple (AAPL)
- Example 12: Washington Mutual (WM)
- Example 11: Lehman Brothers (LEH)
- Example 10: Fastenal (FAST)
- Example 9: Potash (POT)
- Example 8: Research in Motion (RIMM)
- Example 7: Canadian Solar (CSIQ)
- Example 6: Frontline (FRO)
- Example 5: Visa (V)
- Example 4: Google (GOOG)
- Example 3: First Solar (FSLR)
- Example 2: Covance (CVD)
- Example 1: Energy Conversion Devices (ENER)
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