How to Read Stock Market Charts for Beginners

The stock market, and in particular, stock market charts, can be very confusing if you are new to investing.

Indeed, the first time you lay eyes on the perplexing jumble of numbers, lines, and colors that form its aesthetic, can seem quite daunting. But you’ll quickly need to get a handle on how to read them if you want to succeed in accumulating wealth.  

The sooner you can do this, the better you will be at identifying the best opportunities for selling or buying, understanding stock market trends, and generally making savvy decisions about your portfolio. 

Granted, this process can take a while for newbies. But that’s why we have put together this guide.

In it, we hope to give new investors a breakdown of the main things to look for in a stock market chart in simple, layman’s terms.

We hope it will give your investing journey the kickstart it needs.

Takeaway

• Stock market charts provide valuable insights into how any given stock has been performing.

• The more you can understand the data presented in a stock market chart, the smarter the investment decisions you can make

• There are several different types of stock market charts, including bar, candlestick, and line charts

• Price Axis, Time Axis, Volume, and Trendlines are some of the key components of a stock market chart you need to understand

What is a stock chart? 

Okay, so let’s start with the basics of what is a stock market chart?

Well, a stock market chart is a visual snapshot, that most typically takes the form of a graph. Sometimes it is called a ‘price chart’, and its role is to provide investors with empirical evidence of how a particular stock item, such as WBC asx, has performed over a specific time period. 

Stock market charts vary in detail, but most present data that signifies the daily, weekly, and monthly opening and closing prices of any given stock. They also usually indicate how many shares have been traded in them and what their lowest and highest prices have been during that time.

From this information, investors and stock market analysts can glean vital insights from trends and patterns that indicate whether the market is bullish (optimistic) or bearish (pessimistic) about the stock.

This, in turn, can help them make sounder decisions about whether to buy more of it, sell it, or keep the stock they have. 

What are the different types of stock charts? 

What many new investors find confusing is that there is more than one different type of stock market chart they can use.

The reason for this is because each one presents data about price movements differently from the other. Therefore, many people tend to stick to the one that provides them with the most detailed, accurate, and up-to-date information they require to make their investment decisions. 

Candlestick and bar charts, for instance, proffer data about a particular stock on an intraday or daily basis, which can be very useful for those wanting to take advantage of current market trends. As their name suggests, they also convey this information in the form of a candlestick shape and vertical bar.

By contrast, line charts highlight the movement of a stock price over time, such as a week or a month – you guessed it, as a line. This enables investors to better understand if a particular equity could be a good long-term investment for them.

As a first-time investor, it is always good to experiment with several different stock market charts to find the one you understand most and feel most comfortable using.

How To Read a Stock Market Chart? 

The key to being able to read a stock market chart effectively and accurately is to know what to look for. 

It doesn’t matter if it is a bar, candlestick, or line chart; all stock market charts should have the following information on them that you should focus on getting a handle on first.

a. X-Axis (Time Axis)

You will recognize this as the horizontal axis that sits at the bottom of the chart. It denotes a specific time period that could reflect anything from days to months to years, depending on the stock market chart you are reading.

b. Y-Axis (Price Axis)

This is the chart’s vertical axis, and it typically shows how the stock price has tracked over a period of time.

c. Volume

Usually, volume is depicted at the bottom of the chart as bars and represents the number of shares traded during a specific period.

High volumes tend to suggest strong interest in a stock, which might indicate a possible price move in the not-too-distant future. 

d. Trendline

A trendline is what links different points on a chart to illustrate the overall course of how a stock has moved.

It is a good way of indicating how the market views the stock because if the course has been on an upward trajectory, it would be regarded as bullish. Conversely, if it was downwards, it would be viewed as bearish or neutral if it hadn’t undulated that much.

Although stock market charts can be a very beneficial tool for tracking and evaluating an equity’s performance, investors, and particularly new investors, should not rely upon them solely to make their investment decisions.

Instead, they would be wise to take into account other methods of research and analysis, such as finding out how profitable the business has been in the last 12 months, what experts are saying, and whether or not the company has received any bad PR.

Tips For Beginners on How to Read Stock Market Charts

For most new investors, it will take them a while to fully get to grips with the finer workings of a stock market chart. But there are some things you can do to expedite the process.

Initially, you should start off with a bar or line chart, as many people find them easier to read. Over time, as you become more familiar and comfortable with them, you can then gravitate towards candlestick charts that, by composition, are more intricate.

Additionally, while you should analyze the stock over varying timeframes, such as daily, weekly, and monthly, to gain a broader appreciation of its performance, you should remember that the charts only display price movements.

Stock market charts do not explain why a stock has moved upwards or downwards, which is why you should watch the news, follow experts on LinkedIn and social media, and read financial blogs to try and ascertain the reasons for the change in share price.

Perhaps most importantly, when reading a stock market chart, you must realize that the stock market can be prone to downturns, upturns, and wild fluctuations – which is the nature of the beast.

For this reason, you should never see any market change or pattern as finite. But rather stay focused on long-term trends and keep faith in the process you’ve committed to for attaining your financial goals.

Common Mistakes to Avoid

When you are new to stock market charts, it is only natural that you might make the odd error. However, there are some things you should try to avoid doing to maximize the potential returns you can make from investing.

Here are three of the main ones:

1. Don’t lose focus of the Big Picture

Arguably, the most common mistake people make when analyzing stock market chart patterns is focusing too much on individual trends and not taking into account the market at large.

By ignoring wider market trends, you could end up trading against the current tide, which may increase the potential to lose money through rash decisions based on isolated patterns.

 2. Misinterpretation of Stock Market Chart Patterns

Another easy mistake people make is misinterpreting trends or future price changes of any particular stock. This can happen for a variety of reasons, but mainly, it is due to not fully understanding the information conveyed in the different chart layouts or wanting to see patterns that aren’t really there.

Additionally, it can also be because the timescales on which a trend is being analyzed are not sufficient to make a proper judgment.

For this reason, new traders should make a point of gaining extensive knowledge of various chart patterns and develop the ability to detect them across several different markets and industries.

 3. Overcomplicating their Analysis

One of the downsides to reading stock market charts is that you can get lost in the details to the point where you can overcomplicate the process by which you analyze them.

While it is vital to study the charts comprehensively, you should try and avoid using too many technical indicators to make your decisions because they can often conflict.

The best way to improve and simplify the analysis is to focus on a smaller selection of the indicators you feel are most trustworthy and on specific chart patterns.

If you do this, you’ll find it easier to make more lucrative investment decisions.