How to Read a Stock Chart
When it comes to trading the stocks market the stock chart is the basic trading tool used by all traders. The stocks chart will show information about a stocks instrument - the stock chart will show the general direction of stocks prices, the chart will also show the current price of a stock and the chart will also show the historical movement of chart stocks prices.
Traders will use these charts to determine where to place trades. From the chart the trader will analyze the stocks market movements using technical indicators so as to determine the direction of the market and determine the trade to open.
Traders must therefore learn how to use stocks charts before they can start transacting in the online stocks market.
The following are the various things that a trader will need to know about stocks charts.
Types of Charts
There are three types of stocks charts
Line Chart - this charting method draws a continuous line that connects the closing stocks prices. For example if a trader is using the 5 minutes chart then this line chart will draw a continuous line that connects closing stocks price of the stocks market after every 5 minutes.
Bar Chart –This chart use bars to represent stocks price movements, and plots OHCL –Opening stocks price, High, Low, & Closing stocks price for that period, for example if the period used is 5 minutes, the bar will represent the stocks price data and the OHCL points for the 5 minutes.
Candlestick Charts –The are the most popular chart types as they are the most visually appealing and they represent the stocks price movements in an easily identifiable way which clearly show when a market moves up or when it moves down using different colors to differentiate the direction. These candlestick chart look like a candle and they have a body that resembles the wax part of a candle and an upper and a lower poking line that resembles the wick of a candle.
Stock Chart Periods –Chart Time Frames
A stocks chart will draw charts based on different time periods - these are 1 minute, 5 minute, 15 minute, 1 hour, 4 hour, 1 day, 1week and 1 month. The period used to draw chart data is also known as a stocks chart timeframe, for example the 5 minute chart period is commonly referred to as the 5 minute chart by trader. This 5 minute chart timeframe will represent data for the five minutes of trading, after those five minutes another set of data will be used to draw another chart representation. For example if a trader is using candles chart, the data of one candle will draw data of that five minutes, after those five minute another candle will be drawn using stocks price data of the next five minutes - when these candlesticks are combined they then make a graph representation that shows the general direction of stocks prices commonly known as the trend. Stocks traders can then use this information to make trading decisions.
Because the most commonly used charts are candlesticks charts we shall discuss how to read stocks charts specifically candlestick charts.
How to Use Candlestick Charts
The candlestick charts uses candlestick that have different colors to represent different stocks price moves, blue candlesticks show stocks prices closed higher than they opened, red candles show stocks prices closed lower than they opened. This color representation is then used by traders to determine when price has moved up or down.
The candles also show OHCL:
O - Opening Stocks Price
H - Highest Stocks Price
C - Closing Stocks Price
L - Lowest Stocks Price
These stocks price points are represented using a formation which looks like a candlestick, the distance between the opening stocks price & closing stocks price is represented by what is referred to as body, this part resembles the wax part of a candle. High stocks price is represented by a poking line protruding upwards, this line resembles the wick of a candlestick, the low stocks price is represented by a poking line protruding downwards & it also looks like a candle wick facing down.
Candlesticks
A trader can also add a stocks indicator on the stock chart so that they can interpret the chart market using these indicators. Traders will need to place indicators on the stocks so that they can get additional information about a stocks trend & therefore be in a better position to make a more informed trading decision. These technical indicators can be used to predict the likely market direction that the stocks market is likely to keep moving in whether up or down.
A trader can use indicators such as the moving averages and Bollinger to determine the trend. Stocks traders can also use other indicators such as the RSI and stochastic oscillators to determine when to open trades.
Stocks Trend lines are also used to determine the direction of the candlestick charts trends and these lines can drawn on the charts to show this direction. A upward trend will be shown by a stocks trend line is moving up while a stocks trend that is moving down will b e shown a stocks trendline which is heading downwards.
To learn how to draw a stocks trend line and how to trade using technical analysis a trader can learn about the trend line lesson under the learn stocks lessons section of this website, for indicators a trader can learn about stocks indicators & their technical analysis on the stocks indicators section of this website.
