Stock charts are easy to read. But if it is the first time you are looking at one, you can easily feel confused. Here, we will explain the basics.
A stock chart has two dimensions. Vertically, it shows the price; and, horizontally, it shows the time. If you put a dot on the price level corresponding to each day, you would have a line showing price evolution throughout time.
However, market investors want to have more information at first glance. That is why they use the so-called candles instead of just a line.
A candle is a rectangle, like a column, with five important aspects.
The candle has a body and two tails; one leaves from the bottom, and the other from the top.
The body of the candle shows us the opening price and the closing price of the time frame of the candle. Usually, you will look at daily candles, meaning that each candle represents a day, but you can create weekly, monthly, or five-minute candles. All of them work the same.
They will be coloured in green if the opening is lower than the closing and red if the opening is higher than the closing. So there we have three of the five aspects:
1) The top of the candle that shows the opening is red, and the closing of the candle is green
2) The bottom of the candle that shows the closing is red, and the opening is green
3) The colour shows if the day closed higher (green) or lower (red) than the opening.
Then, we have the two tails. The top tail shows the maximum price during the time frame of the candle, for example, that day; and the bottom tail shows the lowest point of the time frame of the candle.
These are the basics. Then, you can apply hundreds of indicators and tools. Our only recommendation is that if you learn about them, do not trust them like they were religion. It is not easy to make money in the market, and just following an indicator will not guarantee that you will achieve it.
But if you take your time learning and trying things –which will likely result in you losing some money – eventually you can find a system that makes you win in the long-term.
Think of it as a hobby, and one day it will work.
If you would like to experiment with reading a stock chart then please use our Live Stock Chart.