Some trading platforms will show you what is happening to stock prices after hours, and even allow you to place trades. However, it is still good to analyze the opening and closing prices of a security. In fact, some analytical software will use these numbers over the course of any given time period to predict what the opening and closing prices or highs and lows will be in the future. Candlestick charts give an excellent view of the asset price open, high, low, and close. Candlestick charts are visually illuminating and make market supply and demand easier to spot.
Generally, a flag with an upward slope (bullish) appears as a pause in a down trending market; a flag with a downward bias (bearish) shows a break during an up trending market. Typically, the flag’s formation is accompanied by declining volume, which recovers as price breaks out of the flag formation. The price/earnings (P/E) ratio is equal to the stock price divided by earnings per share. The ratio shows how many multiples of the annual earnings you pay for the stock.
How Do You Pick a Stock Based on a Stock Chart?
Stock charts are a key tool for all investors, but the best way to use them depends largely on an individual investor’s goals, risk tolerance, trading style and investing time horizon. Investors often watch for big spikes in trading volume, as they tend to coincide with insider or institutional buying, important news or a change in a stock’s trend or pattern. Once you’ve mastered these concepts, you should be able to analyze a stock’s historic activity at a high level. You can see the uptick in the trendline after the split occurred, too. Many times when a stock split happens, more people invest (since the share price is often lower) which increases demand and, in many cases, the overall share price.
Take note of the multi-year cup & handle setup that had formed over the last three years. In the 12 months after its breakout in August 2010, Fossil stock ran over 220%. Sina Corporation’s (SINA) breakout way back in September 2010 serves as how to read stock charts a clean example of how to read a stock chart and what to look for. Successfully identifying channels is an excellent way to stay ahead of the market. Like all technical analysis though, practice and experience are required draw them cleanly.
Stock Market Trends: How to Identify Trends on Charts?
Using bars is a step up from the line chart as it allows us to plot additional useful data on the chart. Here we have each bar representing a trading period with the price High, Low, and Close represented. Good to use when comparing the performance of many stocks on the same chart. Instead of reading a stock chart this time, we’ll take a look at the finance world’s favorite commodity — gold.
What does a stock chart tell you?
A stock chart is a graph that displays the price of a stock—or any type of investment asset—over a period of time. It typically shows the current price, historical highs and lows, and trading volumes. A stock chart's y-axis tracks prices and its x-axis tracks time periods—from minutes and hours to months and years.
But, they act similarly and can be a powerful trading signal for a trend reversal. The patterns are formed when a price tests the same support or resistance level three times and cannot break through. Most stock charts are either for the past year or the year-to-date (YTD).
Bottom Line — Knowing to Read a Stock Chart Is A Must.
The difference between the bid price and ask price is known as the “spread”, or the bid-ask spread. The ex-dividend date represents the day when new shareholders will no longer be entitled to receiving a previously declared dividend. To receive the dividend, investors must purchase the stock prior to the ex-dividend date. The price-to-earnings (P/E) ratio is a widely used measure of a stock valuation, taking the current stock price and dividing it by the company’s most recently reported EPS for the year. Investors use the P/E ratio to determine how many years it will take them to recoup their investment.
- Flags are continuation patterns constructed using two parallel trendlines that can slope up, down, or sideways (horizontal).
- In addition to the volume, also watch at what price the stock closes on an individual day or week.
- Commodities were red hot throughout 2006 and 2007 and analysts believed every investor should have exposure to this trend.
- A chart for a one-day time period isn’t all that helpful if you’re planning to stay invested for the next few decades.
- Investing is very individual, and the tools available to help investors are as well.
The intraperiod highs and lows are represented by the “wicks” or “shadows” of the candle, vertical lines that extend out from the tops and bottom of the candle body. Next, you’ll want to identify lines of support and resistance. A line of support is a price that a stock is unlikely to drop below, while a line of resistance is one that it’s unlikely to go above. That is, until some major change occurs, such as a reduced profit margin.