Stock graphs show major insights into price trends and market behaviour. They show stock price movements, help understand supply and demand, and identify potential entry or exit points. For fundamental analysts, stock graphs can assist in finding the major market events or turning points, and for technical analysts, they are useful in tracing price movements and locating trading opportunities.
All said, the different charts and patterns can be overwhelming if the right ways of interpretation are not known. In this article, let’s understand how to read a stock graph and use the findings for smart investment decisions.
Understanding the Information Displayed on Stock Graph Screens
While the appearance of stock graphs may vary slightly depending on the charting platform, most stock graphs provide similar information and controls.
1) Stock Price
At the top of the screen, you’ll typically find the name or symbol of the stock along with its current trading price. If you’re checking the chart outside market hours, the price usually reflects the stock’s closing value from the most recent trading session.
2) Time Period
Most stock graphs allow users to select a time period for analysis. This could range from a single trading day to several months or years. By adjusting the time frame, investors can see both short-term fluctuations and long-term performance trends.
3) Time Interval
You can select the interval following the time period. This refers to the interval at which you need the chart plotted. For instance, a chart can show price movements of every minute, every five minutes, or every hour.
4) Price
Every bar or data point on the chart indicates major pricing information for the selected interval, usually the highest, lowest, closing, and opening prices. This helps traders by offering insights into the stock price volatility over a certain period at every interval.
5) Volume
Below the primary price chart, nearly all stock graphs have a volume area that shows shares traded in each period. This is usually indicated by vertical bars. A higher bar signifies heavier trading, whereas shorter bars show less volume. Increasing prices with high volume usually indicate strong buying pressure, while low volume can signal less momentum.
Types of Stock Graphs and How to Analyse Them
Traders generally rely on three main types of stock graphs:
Line Chart
The line chart is the simplest form of a stock graph. It connects the closing prices over a selected time period onto one line. This allows one to observe overall trends at a glance.
Bar Chart
A bar chart provides more detail by displaying four important data points for each interval – the opening, high, low, and closing prices.
Candlestick Chart
This is a type of bar chart, but it gives even more visual information. Each candlestick connects the same data points, open, high, low, and close, but colour and shape indicate market mood.
Support, Resistance, and Pattern Recognition
Among the most important concepts in reading stock graphs are support, resistance, and reversal or breakout patterns.
Support and Resistance
Support represents a level where a stock’s price tends to stop falling and reverses direction. It acts as a price floor, an area where selling pressure decreases, buyers gain control, and the price begins to rise again. When a stock approaches this level, traders watch closely for signs that the decline is losing momentum.
Resistance is the opposite. It’s the level at which an upward-moving stock runs into selling pressure sufficient to halt or turn it back. To break through resistance, the stock has to have substantial buying interest and faith in the trend.
Support and resistance levels help investors forecast potential turning points, which can improve trade timing and risk management.
Reversal and Breakout Patterns
In stock graphs, some recurring patterns can indicate that a trend is possibly changing course. Identifying these reversals and breakout patterns can assist traders in anticipating the start or end of a price movement.
When the price moves beyond a well-established support or resistance level, maintaining increased momentum, a price breakout happens. Reversal refers to the shift in a prevailing trend. It happens when the price stops moving in the current direction and starts moving in the opposite direction.
A price breakout signals a new trend, and reversals suggest that the existing trend is losing momentum.
Combining Indicators for Better Insights
Reading stock graphs effectively often involves combining multiple indicators for confirmation. No single pattern or signal is perfect, and false signals can occur. By pairing tools, such as volume indicators and support-resistance levels, traders can confirm their interpretations before acting.
Conclusion
Stock graphs are useful tools for new and seasoned traders alike. The better you can use them to identify key levels, analyse price and volume data, and identify reversal or breakout signals, the better decisions you can make.
