Learn how to read stock charts for beginners in our video and see the many examples in the blog post below to help you become an expert chart reader!
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 body of the candle 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 days open and it is a bearish signal for the day... but it could still be in a overall bullish uptrend and part of a healthy pullback. Let's talk more about candlesticks below.
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. 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 how to read stock charts helps you to 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, and that is what is important. You should strive to become a master at 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 course doesn't cost a dime to take and will cover the major patterns you need to know as a trader or investor.
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 where price pivoted up or down in a meaningful way.
Trend lines connect the prices together to show a direction for the stock, and many traders extend these trend lines ahead on their charts into the blank spacec to see where the future support or resistance may be.
If the trend line is going in an upward direction, 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, or what we call a "trading range". When it's sideways, it hasn't picked a direction, and is often being either 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 this in our trade room.
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.
Another thing you need to learn in how 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 in regards to 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 make sure it breaks resistance and holds before entering. The trade must be confirmed! Buying a stock at resistance can cause you to lose money right away if it does not confirm that it will hold.
Another important part of learning how to read stock charts for beginners is reading the volume of the chart. Is there a significant amount of volume at that support or resistance? On all different time frames, volume will come in and affect the stock chart. Spotting when and were volume begins to flood into the chart is very helpful to confirming your entry or exit.
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There are different time frames you can use for how to read stock charts. For day trading and swing trading, I use the 1 minute, the 5 minute, 60 minute and the daily chart to find entries and exits. For traders, timing is everything, so I want the most synchronicity I can get on ALL TIME FRAMES. This means if I am looking for a bullish entry, I need to the patterns, and price action to be bullish on the 1, 5, 60, and daily charts, ideally, before I take a long trade. Let's use this Trendspider Chart of $SPY below as an example.
The pattern and trend is 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 as such moving averages, RSI and MACD can be added to the chart as additional confirmation to your trade, but don't overdue it when it comes to indicators or tools. Over complicating your chart could hurt your trading. Food for thought as you develop your trading plan.
The RSI is going to show you if a stock is overbought or oversold. The MACD shows the trend. A lot of traders look to take a position as MACD begins to cross over to the upisde. Take our swing trading course to learn more about technical analysis and creating a trading plan that works for YOU!
When learning how to read stock charts for beginners, it's important not to let your emotions take over. The psychology of trading, money, being right or being wrong can affect your trading positively or negatively. Listen to our podcast/webinar on being your own trading coach to see how this plays into being a great trader. Charts hold a lot of knowledge and learning to read them will help with keeping your emotions in check. You need to be robotic, systematic, be a good risk manager, and remain POSITIVE to be a great trader.
Not everyone learns at the same pace. That is why it's so important you pace yourself and not run before you can walk...or crawl. The Guru's will tell you that you can get rich NOW! That is complete nonsense. You will ALWAYS be a student of the market. Pick a winning strategy that works for your life schedule and master it. We'll help you discover who you are as a trader. For example, the gap and go strategy is a popular strategy that works for all stocks, not just pump and dumps.
Anything worth doing takes practice and effort and learning how to read trading charts is no exception. If you haven't already and 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.