How to Read Stock Charts

How to Read Stock Market Charts for Beginners

Are you ready to learn how to read stock charts for beginners? Knowing when to enter and exit a trade is critical to determine before you enter into a position. Learning support and resistance is essential to finding the stock chart’s best buy and sell areas. Candlesticks show important reversal clues, and they also form trendlines. The trend is your friend! Knowing how to read charts gives you, the trader, the edge needed to enter and exit a trade. 

When new investors or traders first begin, the types of charts that people on social media share can be great but overwhelming to read. They seem to show so much, yet understanding what they are trying to show can be difficult initially. You don’t have a good foundation for reading them yet. We are here to change that for you. Seasoned trader’s charts aren’t as simple as those shared on CNBC or local news. There is a lot more to them. 

Understanding how to read trading charts is the first step to successful trading. It isn’t always the most fun and can feel like a lot of work when starting, but it is incredibly important. Reading a stock chart helps you find areas in the future where you should buy and sell by looking at the previous price performance of the stock. It also helps you identify the trend and ensure you are trading with the trend

They have an upper wick, a lower wick, and the solid body of the candlestick. The candle’s body is typically either red or green, but some traders change it to other colors of their preference. If it’s red, it tells you that the price at the close of the day is lower than the day open, and it is a bearish signal for the day… but it could still be in a bullish uptrend and part a healthy pullback.

To read a chart, ensure you understand what chart you are looking at. Answer a few key questions: what is the timeframe for this chart? Common chart timeframes include a 1-year daily chart and a 3-year weekly chart.

Is the chart a typical or “trend candle” chart? Is it a line chart, a bar chart, or an area chart? There are more types of charts – but these are the most common ones.

Is the chart showing a single market (like $AAPL), or is the chart showing something like a ratio chart (like $IWF:$IWD), which would look like a typical market but would be a ratio chart showing $IWF divided by $IWD? Chart

Reading can be very complicated, with indicators above, below, and even on top of the candles!

Candlestick Basics

If the candle is green, it tells you that the price went up throughout the day and closed higher than it opened. That is a bullish signal. The wicks indicate price action from the day. The wick signifies where short-term price action moved to and moved from before the candle stick closed. (ended its life on its time frame)

Learning to read stock charts helps you predict trends in stocks, bitcoin, bonds, or futures. The goal, of course, is to become a technical analyst and be able to predict the right side of the chart (the blank part or future) before it happens. There is no 100% way to predict with 100% accuracy, but you can find high percentage probabilities and manage your trading risk exposure along the way, which is important.

It would be best if you strived to master reading candlesticks as they are the first line of defense in trading – nothing produces information faster on a stock chart than candlesticks. All other indicators LAG compared to price.

If you choose to study this path, you will not regret it. Our candlestick patterns eBook will cover the major patterns you need to know as a trader or investor.

Nothing beats a simple candlestick chart when it comes to trading. Candlesticks have three components.

They have an upper wick, a lower wick, and the solid body of the candlestick. The candle’s body is typically either red or green, but some traders change it to other colors of their preference. If it’s red, it tells you that the price at the close of the day is lower than the day open, and it is a bearish signal for the day… but it could still be in a bullish uptrend and part a healthy pullback.

Candlestick Components

When evaluating a candlestick, it’s often useful to consider where the price closed on the candle. Imagine the candle was divided into four pieces (like a dollar has four quarters). Did the price close near the top (100%), considered bullish, or near the bottom (0%), which would be bearish? Or, did the price close near the middle (50%)? Did the price close above the middle but near it or below the middle but near it?

When looking at a candlestick chart – look at the last candle that closed (to the left of the immediate candle) and ask some questions: was there a gap between the close of that last candle and the opening of the current candle? Is the price right now still within the range of that last candle, or has the price moved high or lower and is now outside that range?

What was the size of that last candle? Looking at the last 10 or 20 candles – was the last candle large or small in comparison? While looking at the last 10 to 20 candles – were there many wicks across the tops or a lot of wicks across the bottoms (or even maybe a lot of wicks across the tops and the bottoms? We are looking for wicks at least 1/3 or ¼ the size of the average candle; we want to see if there was a consistent defense of the lows or a considerable amount of resistance across the highs.

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How to Read Candlesticks on Stock Charts

Another thing we can evaluate when considering a candlestick chart is the number of candles in a row that are the same color; markets are generally two-sided (buyers and sellers), and it’s good to see that a market makes a move with 3 to 5 candles and then pauses before making another move of 3 to 5 candles. If there are 8 to 10 candles in a row of the same color without a pullback, there would be a concern that the move would get extended and turn into a parabola pattern.

While these concepts may seem like a lot to remember now, within a very short time, you have mastered them, and they will become second nature. An analyst should approach a chart with an open mind, seeking answers to questions and looking for clear evidence of past and current market behavior that can be expected to repeat.

When markets do unusual things – that is when technical analysis is at its weakest. When the price is making extreme moves – that is unusual – and that is where technical analysis is weakest. “Most of the time” market movements are “normal” market behaviors, and as you spend more time looking at candle charts, you will gain a better understanding of what “normal” price action looks like.

Remember that “normal” for one stock may not be normal for another. For example, $AAPL stock may behave differently than $USO crude stock. Why? Because people are hoping that oil prices will fall but are hoping for $AAPL stock to rise.

Trend Lines

You can find the trend on the chart by drawing trend lines. Don’t just draw them aimlessly. Find areas on the chart where significant volume entered the stock and price pivoted up or down meaningfully.

Trend lines connect the prices to show a direction for the stock, and many traders extend these trend lines ahead on their charts into the blank space to see where the future support or resistance may be.

If the trend line is going upward, the stock is bullish. If the trend line goes down, the stock will be bearish. When the trend is sideways, the price action is indecisive, or a “trading range.” When it’s sideways, it hasn’t picked a direction and is often accumulated by traders or distributed to traders.

Sometimes, this is healthy consolidation for the next move up. Other times, it’s simply preparing for a move lower. We will teach you the differences between these in our trade room

Identifying the trend for any stock you want to enter might be the most important part of reading stock charts.

Stock Charts Example

How to Read Stock Charts for Beginners
Notice the increase in volume on this chart of $ACB - the stock exploded on high volume and continued to have volatility as long as the volume stayed relatively high. Once it tapered off, so did the price action, and the stock chart stabilized and retraced. To lower levels

How to Read Stock Chart Timeframes

There are different time frames you can use to how to read stock charts. I use the 1-minute, 5-minute, 60-minute, and daily charts to find entries and exits for day trading and swing trading. For traders, timing is everything, so I want the most synchronicity I can get on ALL-TIME FRAMES.

If I am looking for a bullish entry, I need the patterns and price action to be bullish on the 1, 5, 60, and daily charts before I take a long trade. Let’s use this Trendspider Chart of $SPY below as an example. 

Another important part of reading stock charts for beginners is reading the chart’s volume. Is there a significant amount of volume at that support or resistance?

The volume will affect the stock chart in different time frames. Spotting when and where volume begins to flood into the chart is very helpful in confirming your entry or exit. 

Reading a Stock Chart
Note I have all the time frames in each window above. Do you see how the 9 EMA (blue line) points up? That is called a bullish trend. Using moving averages properly and price action will give you a great indication of the trend, and you will know if you are trading with or against it. Never trade against it.

Support & Resistance

Another thing you need to learn to read stock charts for beginners is how to spot horizontal support and resistance. I can’t stress that enough!  

Support levels are where a price tends to fall multiple times without breaking. Price will bounce off the level instead of breaking through it. It has found support. Resistance levels are when a price goes up multiple times without breaking. ALL SUPPORT LEVELS OR RESISTANCE LEVELS WILL BREAK AT SOME POINT.

You always want to buy at support and sell at resistance regarding your time frame. If you are building a trading plan around an hourly chart, find support on an hourly chart to plan your entry. If you see a stock that is moving up that you want to trade the bullish momentum of, you always want to ensure it breaks resistance and holds before entering.

The trade must be confirmed! Buying a stock at resistance can cause you to lose money immediately if it does not confirm that it will hold.

Final Thoughts: How to Read Stock Charts

The pattern and trend are always easier to see when you zoom out and look at different time frames. The longer the trend is up, the more probable the trend is likely to continue. The same is true for bearish trends and patterns.

Other indicators, such as moving averages, RSI, and MACD, can be added to the chart to confirm your trade, but don’t overdo it when it comes to indicators or tools. Overcomplicating your chart could hurt your trading—food for thought as you develop your trading plan. 

The RSI will show you if a stock is overbought or oversold. The MACD shows the trend. Many traders look to take a position as MACD crosses over to the upside. Take our swing trading course to learn more about technical analysis and creating a trading plan that works for YOU!

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