How To Read Stock Charts

Want to know how to read stock charts? Reading charts is a skill that can take several years to master. That is because it is really more of an art then a science. (Even though so many creations and tools have come out to try to reverse that)

You may look at the same chart as me and see something slightly different then I do and in turn make a completely different trade then me from the same information.

So how can you learn to read a chart? Well there are a few big factors to look at, trend, support and resistance, volume, chart patterns, and oscillators. Below is an example of how I used these indicators to conduct stock chart technical analysis.

When it comes to stock charts Technical Analysis rules. And the basis of Technical Analysis is that objects tend to keep trending in the same direction in the future as they were in the past.

So whenever a professional trader looks at a chart the first thing they have to be able to answer is, is it trending up, sideways, or down.

In this case the stock is trending up, a very bullish sign. It does not mean we would jump in, but I would rather look for a bullish set up on this stock then a bearish one because they will have a greater chance of being profitable.

Support and Resistance

Stocks tend to have a level of support and resistance. These are levels at which the stock bounces off of again and again.

The chart above shows a stock on support. Because it has bounced off support many times in the past it is much more likely to bounce off of it again then to break through. As an added benefit we know that if it does break through it is considered a breakout to the downside and the stock will likely continue lower.

If the stock broke out of resistance (made a new high) it would also be a good sign and signify continue growth.

Volume

Reading charts may mean looking at other indicators on the chart. Volume is one of those indicators. The bars on the bottom represent how actively traded one day was compared to another day.

If the Volume is higher on an up day then a down day it means that more people traded the stock on the bullish day then on the bearish day. This would be another good sign.

Unfortunately, volume shows a very bearish sign on this chart. Over the last few months the volume has been getting lower. Less people where trading the stock as it continued up.

Over the last 2 days however it saw 2 massive down days with huge volume. What this means is that sellers will likely drive the stock lower. Maybe the stock’s price was too high and no one wanted to buy, but would easily sale when the stock gave the impression that it may turn around.

We don’t know exactly, but it is a bearish sign and means that the trade is probably not worth attempting.

Oscillators

Oscillators give buy and sell signals separate from the stock. The chart above does not have any oscillators on it, but if you want to learn how to read stock charts and use oscillators you will have to know what the buy and sell signals of each individual indicator is.

Chart Patterns

There are certain patterns that forum in the price of the stock. Another thing that can help you learn how to read stocks is to learn each pattern and what they mean. Here is a list of chart patterns.

In the end there are no guarantees. Learning how to read stock charts can be a great thing, but they need to be combined with things such as risk management and a strict set of rules to be profitable.

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