Stock charts show price movement over time. Learning to read them is essential for any trader. Here are the basics of chart reading.
Types of Charts
Line Charts
The simplest chart type. A single line connects closing prices over time. Good for seeing overall trends but lacks detail.
Bar Charts
Each bar shows four prices: open, high, low, and close (OHLC). More information than line charts.
Candlestick Charts
The most popular chart type for traders. Like bar charts but easier to read visually.
Recommendation: Start with candlestick charts. They show the most information in an easy-to-read format.
Reading Candlesticks
Each candlestick represents one time period (1 minute, 1 hour, 1 day, etc.).
Anatomy of a Candlestick
- Body: The thick part. Shows the range between open and close.
- Wicks (shadows): The thin lines above and below. Show the high and low.
- Green/white candle: Close is higher than open (bullish).
- Red/black candle: Close is lower than open (bearish).
Reading a Green Candle
A daily green candle shows:
- Bottom of body = opening price
- Top of body = closing price
- Top wick = highest price of the day
- Bottom wick = lowest price of the day
Timeframes
Charts can show different timeframes:
- Intraday: 1-minute, 5-minute, 15-minute, 1-hour
- Daily: Each candle represents one trading day
- Weekly: Each candle represents one week
- Monthly: Each candle represents one month
Day traders use intraday charts. Swing traders often use daily and weekly charts.
Key Chart Elements
Trends
- Uptrend: Higher highs and higher lows
- Downtrend: Lower highs and lower lows
- Sideways: Price bouncing between levels
Support and Resistance
- Support: Price level where buying pressure tends to stop declines
- Resistance: Price level where selling pressure tends to stop advances
Volume
Volume bars below the price chart show how many shares traded. High volume confirms price moves. Low volume suggests weak moves.
Common Candlestick Patterns
Single Candle Patterns
- Doji: Open and close are nearly equal. Shows indecision.
- Hammer: Small body at top, long lower wick. Potential reversal after downtrend.
- Shooting star: Small body at bottom, long upper wick. Potential reversal after uptrend.
Multi-Candle Patterns
- Engulfing: Second candle completely engulfs the first. Reversal signal.
- Morning star: Three-candle bullish reversal pattern.
- Evening star: Three-candle bearish reversal pattern.
Tips for Chart Reading
- Start with daily charts to see the bigger picture
- Zoom out to identify major trends and levels
- Use multiple timeframes for confirmation
- Pay attention to volume alongside price
- Practice identifying patterns without indicators first
Track Your Chart-Based Trades
Pro Trader Dashboard helps you track which chart patterns lead to your best trades.
Summary
Reading charts is a fundamental skill for trading. Start with candlestick charts, understand what each candle tells you, and learn to identify trends, support, and resistance. Combine price action with volume for better analysis. Practice regularly and the patterns will become second nature.
Next steps: technical analysis and support and resistance.