Stock charts are crucial tools for investors of all experience levels. At its most basic, a chart illustrates the story of a stock’s price moves over time, providing investors with an immediate picture of a company they’re curious about. Charts answer a simple question: Is this stock on an upward or downward path? Sometimes that’s all people want to know.
But charts can reveal much more. How much investor interest is there in this stock? Where is its price likely to find resistance or support? What does the past look like, and is there a connection to the present—or even the future? Have there been previous blips or stumbles?
Stock charts are dynamic and are constantly evolving with changes in the overall markets. That makes them essential for investors who want to arm themselves with the latest data.
Stock chart drivers and terminology
Price is the main driver behind stock charts. Charts show where a stock is trading at a particular moment compared with where it traded in the past. Investors use this price picture to form an opinion about the stock’s prospects.
A chart can provide a quick snapshot or a long view of changes in price. Some charts capture minute-to-minute price movements in real time. Others reveal how the stock’s price has fluctuated over a week, a month, a year, or any period for which historical data is available
Volume is another key component in many charts. Investors often consider trading volume, or the number of shares changing hands in a public market, to be integral to their analysis. Volume can provide a clue to the strength or weakness of a stock. If shares are rising on increasing volume, for instance, it typically means the company is strong and healthy.
Stock charts terms tend to be consistent across chart publishers, referencing a set of concepts that quantify share performance.
- Open. This refers to the stock’s price at the start of a trading day.
- Close. This refers to the price at the end of that day.
- High. This is the top price reached during a trading session.
- Low. This is the lowest price in the session.
- Last change. This represents the net change from a previous price, and can be either positive or negative.
- All-time highs or lows. These show the record high and low prices in a trading history.
- 52-week highs or lows. These show the highest and lowest prices during a period that equals one year.
- Moving average. This indicates the average value of a security over a given time.
- Support and resistance. These indicate barriers to further upward or downward movement.
Some stock charts include performance measures based on the price of the shares. This data is usually found in text accompanying a chart and not part of the graphical presentation.
- Market capitalization or market cap. This statistic measures the size of a company based on the number of its shares trading on the stock market multiplied by the current share price. A company with 10 million shares outstanding, trading at $75 each, has a market cap of $750 million.
- Price-to-earnings or P/E ratio. This calculation compares a company’s current stock price to its earnings per share. If a company earns $10 billion and has 2 billion shares outstanding, its EPS is $5. If its stock price is $60, the P/E ratio is 60 divided by 5, or 12. This means the stock is trading for 12 times more than the company’s earnings.
- Dividend yield. This measure represents the percentage of a company’s share price it pays to shareholders in dividends each year. Dividend yield is calculated by dividing the annual dividends by the stock’s price per share. If a company pays $5 per share in dividends and its shares trade at $175, its dividend yield is 2.86%.
Stock chart components
While charts vary by type, they have uniform components that investors rely on to assess a stock.
The chart below shows the Nasdaq Composite, a widely followed index of more than 2,500 securities. The main components also are found in charts for individual stocks.
- Chart identification. This is the ticker or trading symbol that identifies the stock, index, or other security in a chart.
- Time period. The charted interval is on the X-axis along the bottom.
- Summary key. This shows key information. The first number, 2303.54, is the last price at which the security traded. Daily means the chart is broken down into one-day intervals. The blue and red lines are moving averages. The blue is a 50-day average and the red a 200-day.
- Moving averages (MA). The moving average smooths out price data by creating a constantly updated average price. These lines indicate support and resistance in each time frame.
- Volume. Each bar on the lower bar chart represents one day’s trading. The red line in the lower section is the average volume over the last number of days, in this case 60. The taller the volume bar, the more shares traded.
- Daily trading range. Each vertical line represents one trading day in this chart. Red means the security was down compared to the previous day; black means the stock was unchanged or up. Charts may alternatively use green to represent up days.
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Types of stock charts
Charts assume a variety of forms, from the simple to the complex. Seasoned investors and investment companies often create their own charts based on data they find relevant.
Three of the most common types are line charts, bar charts and candlestick charts.
These charts represent a stock’s price over a period, using a continuous line to connect data points. The simplicity of a line chart makes it ideal for beginning traders.
The chart below tracks the stock price of Apple (ticker AAPL) over one trading day. The price in US dollars is on the left Y axis while the trading time frame runs below on the X axis. Investors can see how the stock price changed over the trading day.
Line charts that track longer time periods consider just the stock’s closing price with a line connecting those prices over time.
This Apple chart shows a down day. The shares fell $2.67, or 2.09%, to close at $125.12. However, Apple had a slight uptick in so-called after-hours trading following the regular market close, as indicated by the light gray line.
The chart provides other relevant data about Apple, including dividend yield, P/E ratio, and market cap. These values will change in relationship to the change in Apple’s stock price.
These charts consist of multiple price bars. Each bar illustrates how the price of the stock has moved over a specific time.
Bar charts depict a stock’s open, high, low, and close price. The vertical line on a price bar represents the high and low prices for the period. The small left and right horizontal lines on each price bar show the open and closing prices for the period.
Bar charts often include volume indicators at the bottom. The vertical bars here show the number of shares traded during each time interval. These bars are color-coded green or red, based on whether the stock was up (green) or down (red).
In the chart below, the green and red bars in the body of the chart represent the stock’s highest and lowest price as shown at right during the time interval. The length of the bar shows how much the stock moved in each period. Red indicates the price was lower at the end of the interval; green means it was higher.
The wavy purple line shows the moving average of the stock price over the past 50 days. The blue horizontal lines represent resistance (highest lines) and support (lowest lines), signaling that the stock is likely to pause or reverse its trend at these levels.
These charts are like bar charts, but provide some extra information. Investors use candlesticks to find patterns they can use for technical analysis or trading.
The wide rectangular part of the candlestick is called the body. This part of the candle, sometimes called the real body, represents the range between the stock’s opening and closing prices over a specific period.
The lines above and below the body are known as shadows, or sometimes wicks or tails. These lines show the range of the highest and lowest prices during a specific trading interval.
If a candlestick is green, or hollow, the stock ended the specified interval higher than the opening price for that period. The bottom of the body is the opening price, and the top is the closing price.
If the candlestick is red, or filled in, the stock closed lower than its opening price for the interval. The top of the body represents the opening price, and the bottom denotes the closing price for that period.
Tracking the opening and closing prices for each interval lets investors determine if the stock’s momentum is upward or downward. Changes in the shape of the candle may reveal patterns that could indicate the short-term direction of the stock’s price.
Below is a six-month candlestick chart of Apple’s stock, with each candle representing one trading day.
Using charts to analyze stocks
Charts provide lots of information about a given stock. But how does an investor interpret this visual story and turn it into an investing strategy?
Investors can use a chart to reveal trends and patterns to help them decide on a company’s shares. They often look at two important technical cues.
Charts sometimes include a straight line that connects two or more price points and extends into the future to reveal an upward or downward trend. (Many investors also draw their own trendlines.)
The line hovers over highs or under lows and shows support and resistance in the time frame charted. Once the stock price approaches the trendline, it will take one of two paths: It will bounce off and continue in the direction of the past trend. Or it will break through a trendline in a signal that the current trend is reversing.
The volume bars at the bottom of a chart indicate interest in a stock. Increasing volume equals increasing interest, for both positive and negative reasons. Big jumps in volume may coincide with big price moves. By studying volume patterns over time, an investor can attempt to determine the connection behind a stock’s advances and declines.
Investors also pay attention to volume because it can indicate interest from large institutional players.
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