Let's talk about how to read stock charts for beginners. Understanding how to read trading charts is the first step to successful trading. It isn’t the most fun aspect of trading, but it is incredibly important. Reading a stock chart helps you to find trend lines, support and resistance and patterns. Once you learn how to do all that then you are well on your way to success. The video below will help you to get started.
Learning how to read stock charts for beginners takes practice. Candlestick charts are my favorite stock charts. Candlesticks have three components. They have an upper wick, lower wick and the body. The body of the candle is either red or green. If it’s red it tells you that the price at the close of the day is lower than the days open and it is a bearish signal.
If the candle is green, it tells you that the price went up throughout the day and it closed higher than it opened. That is a bullish signal. The wicks indicate price action from the day.
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Learning stock trading charts helps you to predict stock trends. You can find the trend by drawing trend lines. Trend lines connect the prices together to show a direction for the stock. If the trend line is going up, the stock is bullish. If the trend line is going down, the stock is bearish. When the trend is sideways, the price action is in an indecision. Have you ever heard the saying, “The trend is your friend”?
Learning how to identify the trend for any stock you want to get into just might be the most important part of reading stock charts. Make sure to watch my video teaching you how to draw trend lines in ThinkorSwim. It’s a really helpful guide for those that what to know how to read stock charts for beginners.
Another thing you need to learn is how to spot 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.
You always want to buy at support and sell at resistance. If you see a stock that is moving up, you always want to make sure it breaks resistance and holds before entering. Buying a stock at resistance can cause you to lose money right away. Read more about stock trading strategies and how they work.
Another important part of reading a stock chart is reading stock patterns. The stock chart begins to form different patterns. Those patterns signal bullish or bearish moves.
For example, a gap pattern happens when the opening price of the stock opens higher or lower than the previous days close. An example of a gap up is Amazon. Back in October it closed around $970.
The next day it opened at $1057. Tesla gapped down in the beginning of November. There are many different patterns you can learn.
There are different time frames you can use to read stock charts. I use the 1 minute, the 5 minute and the daily chart when I am looking at a stock. I use the 1 minute chart for find my entries and exits.
The 5 minute chart I use to find patterns when I’m in a stock or considering getting in. The 1 minute chart moves pretty quickly and sometimes I find that I panic sell or buy when I look solely at the 1 minute chart. The 5 minute charts slows things down.
The patterns are easier to see and it’s a pretty good indicator on whether or not the stock will continue to climb. The daily chart is really important for seeing the patterns. If you see a bullish pattern on the daily chart then you know that the price action of the chart is going to go up. The same goes for a bearish pattern.
Other indicators as such moving averages, RSI and MACD can be added to the chart as additional tools. The moving average lines help with support and resistance. The RSI is going to show you if a stock is overbought or oversold. The MACD shows the trend. Take our swing trading course to learn more about technical analysis.
The indicators and patterns help with day trading and swing trading. That is why reading a stock chart is so important. It is your tool. Learn how to use it.
When learning how to read stock charts for beginners, it’s important not to let your emotions take over. Charts hold a lot of knowledge and learning to read them will help with keeping your emotions in check. But the stock market is unpredictable at times.
Just because the charts show the patterns and the perfect set ups does not mean that it is going to go the way you’ve hoped. Sometimes it takes longer than you anticipated. News affects a stock differently than what you thought. Things happen but if you can control your emotions and read the charts, you’ll be successful.
Learning how to read trading charts takes practice. Technical analysis basics are key. Especially when you are beginning. But remember practice makes perfect. The gurus were beginners once too.
If you learn how to spot the trend (the trend is your friend), support and resistance (buy at support sell at resistance) and spot the patterns you’ll be well on your way to successful trading.
Anything worth doing takes practice and effort and learning how to read trading charts is no exception. If you’d like to learn more about trading be sure to take our courses on our website and join our community, trade room, and subscribe to our watch lists and watch list videos showing you how we find support and resistance levels to find stocks to trade.
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