Stock Trading Charts Basics





Stock trading charts are widely available nowadays as free and part of pay for charting software. Basically, a stock market chart plots the price of underlying instruments like Google share over a period of time.

The most common type of stock trading charts are line, bar chart OHLC (open, high, low and close price) and Japaneses candlestick. Each bar or candlestick represent the opening, highest, lowest & closing price. This could be daily, weekly, monthly or even 5 minutes bar, or candlesticks, depending on the time frame you wish to display.

Most people use OHLC or candlesticks as line chart only show a rough closing price or mid price.

OHLC Charts

open-high-low-close-bar

This bar shows the closing price is higher than the opening price.

If the closing price is lower than the opening price, then the open & close horizontal bar will be upside down.On some trading chart softwares, this will be red.


Japanese Candlestick

candlestick-up-bar

The green or sometimes a clear/white body candlestick shows closing price is higher than opening price.

If the closing price is lower than the opening price,then open price is top of the body and closing price is the bottom of body. This will be either be red or black color.


Doji

This is where the opening & closing price is the same. Often,this is a sign of reversal, however temporary it may be.







Up Trends

If the price is sloping up and the low is getting higher and higher, then this is an uptrend. You can draw an uptrend line on the stock trading chart by connecting at least two higher lows together. The more this line touches the low or bottoms, pardon the language, the stronger the trend.

Down trends

If the price is sloping down and the high is getting lower and lower, then this is a downtrend. You can draw a downtrend line on these stock trading charts by connecting at least two lower high together.The more the trend line touches lower high, the stronger the downtrend.

Support

Price often go into a little trading range or channel. It normally falls to a certain lower price level that's been achieved before. You can draw a horizontal support line by connecting the low across the chart from left to right. The more times it touches the low, the stronger the support line & price is likely to bounce up.

Resistance

Once price starts to rise, it normally goes to the next level that's been achieved before . This is normally the highest price at that particular time. The more the price touches this high and do not break this line, it is then likely to reverse down.

If the support and resistance levels are broken, they become the opposite

  • Broken support will become resistance
  • Broken resistance become support

This is part of your timing strategy for entry and exit a trade, even if you want to have a buy & hold stock strategy.To stack the odds in your favor,you need to look at the charts to see if it's going (or about to ) in the direction(stock market trend) you want before entering the trade.





The S&P 500 index stock trading chart below show an example. Although it's only 30 minutes chart, it showed almost everything mentioned here & I want to draw your attention to news / earnings calendar mentioned in

stock trading basics page.

See that last dive. From the support turned into resistance level at almost 1367.1, it fell to support level at around 1330. This is partly due to a company GE , listed in US stock market, it's

Earnings per share,EPS earnings report came out worst than expected and they have to cut their forward forecast. It took the whole market down! Investors are fearing credit crunch is not over yet!

charting-explained-sp500-30min

See how price falls to certain support level before bouncing towards the resistance level. Also, when price begins to break the trend lines ( left and right diagonal lines) and fail to return to the line, a change in direction is likely to occur. This did happen in our case.

So to make some money I would place a buy stop order above the resistance/support of 1330 on 1st April and then keep moving my stop loss to lock in profits to below 1360 once it passed the other two support/resistance levels.

Stock market charts do not lie. They paint a picture of investor's greed and fear which drive the price up & down. Looking at the above chart, wouldn't you agree that it is full of emotions? It was a big swing trading up, down, sideway, down etc.

There are other Tell-Tale Signs when looking at stock trading charts using Japanese Candle Sticks instead of line or bar charts. You can click here to watch a free video on

17 Japanese candle sticks you can use today.


You can use technical indicators with all the above as confirmations to buy and sell and also to confirm change of trend directions. Most stock trading charts software, either free or pay for have these indicators.

Click here to learn more on technical indicators/ stock trading signals

You can also use

Ramp Pattern Recognition Scanner which scan stocks that are touching/ bouncing off Support and Resistance, Trendlines, Breakouts and Fibonacci Retracements levels. You can then place your trade accordingly afterward.





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