How to Read Stock Market Charts

Master stock market charts with our beginner-friendly guide. Learn to identify trends, seize opportunities, and make informed investment decisions.

If you’re new to investing, the first time you lay your eyes on the blur of lines, numbers, and colours that make up a stock market chart can be very confusing.

However, if you want to be successful in generating wealth, it is important to learn how to read these charts.

Doing so will make it much easier for you to understand stock market trends, identify buying and selling opportunities, and make smarter decisions. Yet, only if you have a firm grasp on the basics.

But don’t worry, we are here to help!

In this guide, we’ve provided an overview of the key elements of stock charts in simple, easy-to-understand terms.

Hopefully, it will help you better understand their purpose and function.

What is a stock chart?

First and foremost, let’s clarify what exactly we are referring to when we say a ‘stock chart’.

Essentially, a stock chart is a visual representation of how the price of a stock, for instance, the CBA share price ASX has moved over a period of time.

Often referred to as a ‘price chart’, it presents various pieces of information relating to the stock, including its opening and closing prices for every day, week or month, and its highest and lowest prices. It also displays how many of its shares were traded.

Typically, stock market analysts and investors use these charts to uncover patterns and trends in the movement of various stock prices to help make more lucrative investment decisions.

How Do You Read a Stock Chart?

If you don’t know what to look for, reading a stock chart can be quite confusing. But once you know the basics, it should become easier.

Here are some of the main things to look out for to help you better understand the information on a stock chart:

a) Price Axis (Y-Axis)

The vertical axis on the right side of the chart shows the stock price and will help you track how the stock price has moved up and down over time.

 b) Time Axis (X-Axis)

The horizontal axis at the bottom illustrates the time period.

This could range from days to years because, depending on what type of stock chart you are looking at, stock prices can be shown over the last day, week, month, or even longer periods.

 c) Volume

Volume is usually displayed as bars at the bottom of the chart and represents the number of shares traded during a specific period.

If there is a high volume, it can indicate there is a strong current interest in a stock, which, in turn, could signal that a possible price move is on the horizon.

 d) Trendlines

A trendline connects points on a chart to show the general direction in which a stock is moving.

This could be upward (referred to as bullish), downward (bearish), or sideways (neutral).

Overall, while stock charts can be a very useful tool for analysing the performance of any given stock, they should not be solely relied upon.

Instead, you should use other analysis and research methods to help you make more savvy investment decisions.

What type of stock chart should you use?

Overall, there are many different types of stock charts that you can read to analyse the performance of an equity. They include bar charts, candlestick charts, and line charts, all of which convey the information in a slightly different way.

Bar charts highlight data such as the opening, closing, high and low stock prices as vertical bars for each day, while candlestick charts, as its name suggests, use candlestick shapes to do the same.

Line charts are slightly different in that they showcase the movement of a stock price as a line which outlines what the closing prices were over time.

Why are there different types of Stock charts?

Good question! And the answer basically boils down to the fact that each stock chart presents information on price movements in a different way.

Therefore, at any given time, investors tend to read the one that will provide them with the data they are looking for as quickly and accurately as possible.

For instance, bar and candlestick charts tend to provide detailed information about a stock on a daily or intraday basis. This can be useful to investors who want to capitalise on current market trends.

By contrast, line charts highlight the movement of a stock price over time, such as a week or a month, which enables longer-term investors to understand if a particular equity could be a good investment.

If you are investing for the first time, it is a good idea to experiment with these different charts to determine which one you feel most comfortable using and understanding.

Tips For Beginners

Understanding stock market charts is just one part of the investment process. Here are some other tips you might find useful to help you on your journey.

Firstly, it is a good idea to start simple, by sticking to line or bar charts initially. Once you feel comfortable, you can then experiment with more detailed charts like candlesticks.

When looking at a stock, it is also worthwhile checking different timeframes (i.e. daily, weekly, monthly), as this will give you a wider understanding of the stock’s performance.

That said, it is important to recognise that charts only show price movements. They do not explain why a stock is moving.

For this reason, read blogs or watch news bulletins about the financial market to try and determine what market forces might be affecting a share price.

Lastly, stay patient. The stock market can be unpredictable and is open to wild, short-term fluctuations.

If the market experiences a slight downturn, try not to overreact to every small movement. Instead, focus on long-term trends and your ultimate financial goals.