When you are new to investing it seems like every picture of an investor you see is one with someone looking at multiple screens. And on those screens numbers are flashing, colors are flashing, there seems to be a lot going. What is on those screens in those pictures are charts. Charts help investor or trader see the price of the stock and quickly compare it to where the price was and where it could be going. Reading a chart is very simple once you understand what you are looking at. So lets take a look at a few charts and break them down.
(Charts provided by Yahoo, E-Trade, and E-Trade)
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This first chart is of Facebook (FB), the time is frame Year-to-Date (YTD). YTD starts at the beginning of the year and ends on the day you are looking at the chart.
This chart is a Line Chart or a Mountain Chart. Lets break it down by the numbers on the chart.
1. This blue line trending up represents the daily price of Facebooks stock. (at this time FB is over $150/share)
1A. Another look at the price line a few months later, Facebook stock is now over $170/share.
2. These green and red line represent the daily volume of the stock. The volume is the number of shares traded per day.
3. This is the time axis. Since we are using a daily YTD chart, the time axis has the previous months of trading.
4. This is the price axis, this is where you will find the price that the stock has previously traded at.
5. This is the summary of the stock for the trading day. Open is the price the stock opened at on the day. Close is the price where the stock closed at on the day. Low is the lowest price the stock reached on the day. High is the highest price the stock reached on the day. Vol is volume, and displays how many shares have traded for the day. % Chg is the percentage amount the stock has increased from the beginning of the year.
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This chart is also of Facebook (FB), the time is frame Year-to-Date (YTD). YTD starts at the beginning of the year and ends at the day you are looking at the chart.
This chart uses Open-High-Low-Close (OHLC) candles to track the price of Facebook.
1. These black candles are showing the past price of Facebook. (at this time FB is over $150/share)
1A. Another look at the price with the OHLC a few months later, Facebook stock is now over $170/share.
2. These green and red line represent the daily volume of the stock. The volume is the number of shares traded per day.
3. This is the time axis. Since we are using a daily YTD chart, the time axis has the previous months of trading.
4. This is the price axis, this is where you will find the price that the stock has previously traded at.
Lets take a closer look at an Open-High-Low-Close candle
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This first chart is of Facebook (FB), the time is frame Year-to-Date (YTD). YTD starts at the beginning of the year and ends at the day you are looking at the chart.
This chart is a chart made up of candlesticks. These candlesticks are a little different than the OHLC candles we reviewed. Lets break it down the chart by the numbers on the chart, and then we will look at the candle.
1. The line of red and green candles trending up represents the daily price of Facebooks stock. (at this time FB is over $150/share)
1A. Another look at the price line a few months later, Facebook stock is now over $170/share.
2. These green and red line represent the daily volume of the stock. The volume is the number of shares traded per day.
3. This is the time axis. Since we are using a daily YTD chart, the time axis has the previous months of trading.
4. This is the price axis, this is where you will find the price that the stock has previously traded at.
5. This is the summary of the stock for the trading day. P is the current price. O is the price the stock opened at on the day. C is the price where the stock closed at on the day. H is the highest price the stock reached on the day. L is the lowest price the stock reached on the day. V is volume, and displays how many shares have traded for the day.
Lets take a closer look at a candlestick
When looking at these candles the only difference is the where the open and close is for each candle. On the green candle, the open is at the bottom of the candle and the close is at the top of the candle, indicating that the stock price rose in price from the open. The daily low of the candle indicates that the stock price did trade below the opening price at one point in the day. On the red candle, the open is at the top of the candle and the close is at the bottom, which indicates that the stock decreased in price from the open. The daily high of the candle indicates that the stock did trade at a higher price than the open price.
That is the basics of reading a price chart for a stock or any other investment. As you continue to review charts understanding them will become easier. I hope this helps you better understand charts. Keep an eye out for more articles in our Beginners Block. Get notified of new articles by leaving your email.