To make things easy, you must learn how to read the chart. Nonetheless, even charts can be intimidating, especially to newbies.
It might seem like a simple graph, but it packs valuable insights to help you make better trading decisions.
From the letters to the numbers, colors to lines, the components of a stock chart can be overwhelming. Nonetheless, it can be easier to understand if you break them down by component.
In the same way that you must know how to read the tide chart before surfing or fishing, you must understand how to read the stock chart before investing your hard-earned money.
Read on as we share the basics of reading the charts. We’ll also talk about the types of charts and information you can find in one.
Stock Chart Construction — Lines, Bars, Candlesticks
You’ll find different types of stock charts in terms of construction. In most cases, you can switch from one type to another, depending on what is easiest for you to understand.
A line chart is one of the most common, which lets you analyze longer-term data. It shows the past prices and the closing price of a certain period.
More so, a bar chart shows four crucial pieces of information —open, high, low, and close.
Lastly, a candlestick chart is a visual representation of two parts — the body and the wick. The wick is a thin line on the top or bottom representing the highest and lowest prices. On the other hand, the body shows the open and closing prices within a specific time. Knowing how to read the candlestick chart helps you understand the buying and selling pressure.
Stock Chart Terms to Know
Aside from knowing how to read the chart, it’s also crucial that you learn the important terms, including the following:
- Market Cap: It stands for market capitalization, which measures a company’s size based on the number of shares multiplied by the current price.
- 52-week High and Low: This is the highest and the lowest price the stock has traded in 52 weeks.
- Price-to-Earnings Ratio: Also known as the PE ratio, investors use such to determine if a stock is overvalued, undervalued, or fairly valued.
- Open: It’s the stock’s price during the opening of the trading market.
- Close: This refers to the price upon the closing of the market.
- High: It’s the highest price a stock reached during its trading.
- Low: It shows a stock’s lowest market price during the trading day.
Why Use Charts
There are plenty of reasons why you should use stock charts. On top of the list would be visualization. It makes it easier to understand numbers and trends. You can quickly spot performance with a quick look at the graphs.
More so, reading the charts helps you make well-informed decisions. Especially for a novice trader, charts can summarize essential information that can impact your trading strategies.
What’s in a Stock Chart?
One of the first things you will see in a stock chart is the company’s name. You’ll also find the current market price. More so, it shows whether the price has been up or down within a specified period, such as in a year.
As for the chart itself, you can find the price and dates. Below the chart, you’ll find other crucial details, such as open, high, low, close, market capitalization, 52-week high, and 52-week low.
Daily vs Weekly Charts
The main difference is in the name. The daily chart looks at the stock’s daily prices. On the other hand, weekly charts are a bit longer-term since they present data for the week.
If you want to look at day-to-day performance, the daily chart is your best friend. Meanwhile, if you want a bigger market picture, you can refer to the weekly chart instead.