Reading stock charts, or stock quotes is a crucial skill in being able to understand how a stock is performing, what is happening in the broader market and where this stock’ price could fluctuate. Knowing the basics can help investors make better decisions and are vital in getting into and understanding investing.
Here we’ll break down the essentials of a stock chart and explain the key things you need to focus on. By the end, hopefully, terms like “dividend,” “trend line,” and “lines of support” won’t sound so foreign. So let’s dig into it!
Table of Contents
Basic Terms to Know When Reading Stock Charts
How to Read Stock Charts: 4 Tips to Keep in Mind
What is a Stock Chart?
Simply put, a stock chart or table is a set of information on a particular company’s stock that generally shows information about price changes, current trading price, historical highs and lows, dividends, trading volume and other company financial information. More advanced stock charts will show additional data, and by understanding the basics you can pull out a lot of information about a stock’s historic, current, and past performance is not indicative of future one. We’ll be discussing both basic and some advanced terms in a stock chart going through them and what they mean. So let’s dig in.
What You Need To Know When Reading Stock Charts
A stock table may look intimidating at first because there is a lot of information present. However, to be confident in how to read stocks, you must be able to digest each data point and extract insights from the stock table. Each column in the chart gives you some clues about the current state of affairs for a particular company to help you make smart investment decisions (see the chart below). So let’s jump straight into the basic terms you should know when reading stock charts.
Source: MetaTrader 4
52-Week High and Low
A 52-week high is the highest price the stock has traded for during the preceding 52 weeks, while the 52-week low is (you guessed it) the lowest price the stock has traded for during the preceding 52 weeks.
Dividend Yield
Dividend yield tells you how much an investor may receive annually in dividends (cash payments companies may offer to shareholders), expressed as a percentage of the current share price.
Dividend per Share
Not all companies pay out dividends which are essentially small payouts of company profits to shareholders. But for the ones that do, the dividend per share or the annual dividend payment per share for investors will be represented on the stock chart.
P/E Ratio
The P/E ratio stands for the price-to-earnings ratio. It’s a key metric when looking at a stock chart and is found by dividing the current stock price by the earnings per share for the past year (four quarters).
Ticker Symbol
A ticker symbol is an abbreviation used to identify publicly traded shares of a particular stock on a particular stock market. The ticker symbol may consist of letters, numbers or a combination of both.
Open Price
The Open Price is the price at which the security first traded at the open of the day’s trading on its stock exchange.
Close Price
The closing price is the raw price or cash value of the last transacted price in security before the market officially closes for normal trading.
Prev. Close
The previous close is a security’s closing price on the preceding period of the one being referenced. The previous close almost always refers to the prior day’s final price of a security when the market officially closes for the day.
Day High
The Day’s High Price is the highest price at which the security has traded during the current trading day.
Day Low
The Day’s Low Price is the lowest price at which the security has traded during the current trading day.
Net Change
Net change is the difference between the closing price of the current trading session, compared to the closing price of the previous trading session.
Market Cap
Market capitalisation refers to the total value of all a company’s shares of stock. It is calculated by multiplying the price of a stock by its total number of outstanding shares.
Bid and Ask
The term bid and ask refers to the best potential price that buyers and sellers in the marketplace are willing to transact at. In other words, bid and ask refers to the best price at which a security can be sold and/or bought at the current time.
Volume
Volume is measured in the number of shares traded and, for futures and options, it is based on how many contracts have changed hands.
Average Volume
The Average Volume is the total volume for a specified period divided by the number of bars in that same period.
Day’s Range
Day’s range refers to the stocks with the highest average day range (a measure of volatility). More volatility can equal greater than average returns. The day range returns the difference between the high and low prices of the day, represented as a per cent of the closing value.
Beta
Beta is a numeric value that measures the fluctuations of a stock to changes in the overall stock market.
Earnings per Share (or Trailing 12 Months, TTM)
Earning per share is a company’s earnings generated over a prior period (often a fiscal year) reported on a per-share basis. Trailing Twelve Months is a phrase used to indicate the previous 12 consecutive months of a company’s financial data, leading up to the time that a report of that data is generated.
Ex-Dividend Date
The ex-dividend date of a stock is the day on which the stock begins trading without the subsequent dividend value. Investors who purchased the stock before the ex-dividend date are entitled to the next dividend payment while those who purchased the stock on the ex-dividend date, or after, are not.
1-Year Target Estimate
One year target is an estimate of a stock price for a point in time equal to a year from the current date. The price level most often reflects the collective opinion of different analysts on where the stock will be trading a year from now.
Now that we have gone through some of the basic terms on the stock chart, let’s have a look at the four tips that you’ll need to keep in mind when reading stock charts.
How to Read Stock Charts: 4 Tips to Keep in Mind
More advanced stock charts will show additional data and by understanding the basics you can pull out a lot of information about a stock’s historic, current, and expected performance. In this section, we’ll discuss the four vital tips to keep in mind when reading stock charts.
Tip #1: Identify the Trend Line
Trend lines can be used to identify and confirm trends. A trend line connects at least 2 price points on a chart and is usually extended forward to identify sloped areas of support and resistance. Lines with a positive slope that support price action show that net demand is increasing. As long as the price action stays above this line, we have a bullish trend. Lines with a negative slope that act as resistance to the price action show that net supply is increasing.
As long as the price action stays under this line, we have a bearish trend. Price usually retests a sloped trend line several times, until it breaks at which point we may have a trend reversal. The more points there are to connect, the stronger a trend line becomes. Different strategies have different rules on how far apart connected price points can be and whether to connect wicks or candle bodies, but all trend lines break eventually.
Tip #2: Identify the Price (y) & Time (x) Axes
A typical stock graph measures two things: time and price. To set up a graph, label the x-axis, or horizontal axis, time. Label the vertical, or y-axis, price. This ensures that as your line graph moves from left to right, it will represent rises (by moving up) and falls (by moving down) in the price of the stock over time. Prepare a separate graph for each stock you plan to examine in this way, since plotting two stocks on the same graph can quickly become confusing if the lines cross or merge at any point.
Use whatever data you have on the stock’s price to plot points on your graph. Each point needs to correspond to the exact price on a specific date. Stock quotes usually reflect the price at the end of trading on the date listed. Plot as many points as you have data for and can fit on your graph. Complete the graph by connecting the dots with thin lines, from left to right. The resulting line graph will show increases and decreases in the price of the stock over the time you measured. Steep lines indicate rapid price changes, while more gradual slopes show slower price change.
Tip #3: Identify the Lines of Support & Resistance
Support and resistance levels are horizontal price levels that typically connect price bar highs to other price bar highs or lows to lows, forming horizontal levels on a price chart. A support or resistance level is formed when a market’s price action reverses and changes direction, leaving behind a peak or trough (swing point) in the market.
Support and resistance levels can carve out trading ranges and they also can be seen in trending markets as a market retraces and leaves behind swing points. The price will often respect these support and resistance levels, in other words, they tend to contain price movement, until of course price breaks through them.
Tip #4: Find the Trading Volume & the Historic Trading Volume
Trading volume is a measure of how much of a given financial asset has traded in a period of time. Finding the trading volume with stock is a useful tool for analyzing the price action of any liquid asset. If the price of an asset is range-bound and a breakout occurs, increasing volume tends to confirm that breakout. A lack of volume indicates the breakout may fail.
Historical trading volume can be used to back-test pricing models, investment strategies, to mine data for patterns that have occurred in the past and to detect technical indicators for day traders, among other uses.
The trading volume can be presented with supplemental data, such as the high and low prices that have been recorded over the course of the trading day. The stock quote may also show the change in the value of the security compared against the prior day’s closing price or the opening price of the current trading day. The difference in prices might be shown as a percentage, revealing how much security has increased or declined in value.
Now Over to You
Now that you know how to read stock charts, perhaps it’s time you put these skills to the test on a stock that we have on our website. Start looking at what we’ve mentioned in this blog and have a go at investing in stocks yourself. Remember those four tips and stay alert for identifying those lines of support & resistance. Although that being said, you may simply want to Copy Trade and let someone else do the stock investing for you…
We hope you enjoyed this edition of the knowledge crunch blog just as much as we enjoy writing them! Stay tuned for more and be sure to check out our other helpful blogs with advice and tips to reach your investment goals with ZuluTrade.
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Disclaimer: The views expressed do not constitute investment or any other advice/recommendation/suggestion and are subject to change. Reliance upon information in this material is at the sole discretion of the reader. Opinions expressed in this article do not represent the opinion of ZuluTrade Social Trading Platform and do not constitute an offer or invitation to anyone to invest or trade. Every metric and the statistical number results from a past performance that does not constitute a promise or a certainty for a future one.