How to read a stock chart
So you’ve made the decision to start investing, and now you want to track how your businesses (and your money) are doing. When it comes to stock charts, up is good and down is bad, right? How complicated could that be?
You would be surprised. First off, they come with super twee names like “candlestick” and “mountain map” which are yummy and all, but not particularly beginner-friendly. Then when you actually look into the thing you’ll find a million different data points all screaming at your attention until you eventually pass out with the code falling from the matrix dance before your eyes.
Yeah, stock charts are weird. But they can be a useful part of your research toolbox when choosing companies to invest in. So let’s do some decoding, before we end up looking like the confused mathematician… the blonde doing the math? Uh, whatever that meme is called.
How to find a stock chart
Daily newspapers all print stock charts, but suppose you’re one of the vast majority of young people apathetic to the death of the print media. It’s online! There are hundreds of free online services available, with Google Finance and Yahoo! Finance among the most popular.
There are many advantages to going digital. You can create a personalized dashboard of your portfolio, access it anywhere and see your stock performance updated in real time. The downside is that you’re much more likely to want to make an impulsive decision when something you own dips for a minute. Prepare yourself mentally for this and have your self-care tool of choice handy to shut down.
To get started, you need to know your company’s unique “stock symbol”. It is the acronym that identifies it on the stock exchange. Some companies get really cute with this (Harley Davidson trades under HOG) while others are simpler (Dell is uh, DELL). Find your company’s stock symbol, enter it into your web dashboard of choice, and away you go.
Types of charts
It’s probably best to understand what you’re actually looking at. There are three main types of stock charts:
Simple but effective. A stock’s past prices are connected to a line, helping you see general trends almost instantly. The little vertical lines at the bottom tell you the “volume”, or how many shares have been traded. A higher volume line means more trades.
Popular with technical analysts. The top and bottom of the vertical line tells you the highest and lowest price the stock has traded at at any given time. On the left side of the bar, you’ll find the stock’s initial price at the market’s open for the day (called the “open price”), while the “closing price” is on the right.
These are like a combination of line and bar charts. The widest part of the candlestick is color coded to let you know if the closing price was higher or lower than the open price: black or red means lower, white or green is higher.
If you’re really into data visualization (and who doesn’t?), you can also access “open-high-low-close”, “mountain”, and “point and figure” charts. But no matter what type of chart you use, each will be broken down into different timeframes – minute, daily, weekly, monthly or yearly – and show you the stock price and trading volume, which is really Everything you need to know.
So what should I do with this information?
It depends on what you are looking for. Let’s keep it simple and say you’re investigating a stock to buy or doing a general performance check on something you own.
Step 1: You will want to have a general idea of the company’s performance. Select a “six month” view. Look at the prices. Look at the line that connects them. Is it a happy, upward sloping line? Boom, the prospects for this company appear to be healthy.
2nd step. Watch for anything erratic, such as a massive spike up or down. Maybe the CEO left the company? Or were there rumors of an upcoming merger? You will want to do some research to better predict these spikes in the future.
Step 3. Compare your business graph with some competitors. If all video game makers in North America are on a downward trend, the problem is probably with the market, not your business. Determine what is happening and if you need to change your strategy
Step 4. Remember that we all know when playing flip cup that past performance does not guarantee future results. It’s easy to spend hours staring at stock charts and convince yourself you’re a financial Nostradamus, when really, investing in solid companies and checking them every two weeks is all you have to do. So use stock charts to inform your investment strategy, but please don’t go all Aronofsky with it.