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Here’s How to Read a Stock Chart

November 15, 2018

4 min read

You’ve taken the first step and started investing money in the stock market, and you’re hopefully on your way to building a well-diversified portfolio.

But you may wonder what the best way is to keep track of how your investments are doing.

One way is by looking at a stock chart.

What’s a stock chart?

It’s a graphic image that contains just about all the price information you want about your individual stocks or funds. This information is widely available online for just about any publicly-traded security.

Stock charts have lots of data, but don’t be intimidated. They simply tell you the story of how your investment is doing over time. (Note: there are also bond charts, but that’s a different article.)

Graph is for educational purposes only. This graph is not a prediction or projection of performance of an investment or investment strategy.

The chart line. The chart line, sometimes referred to as a fever line, represents the stock price as it changes over time.

Time period. In many online stock charts, you can adjust the time period for the stock price, from a single day, to a period of months or years.

Historical data. By looking at the historical data, you can get a sense of how a stock has performed over a specific period of time.

What other information can I find with the stock chart?

In addition to the chart line, here are some of the key pieces of information you may find in most charts.

Graph is for educational purposes only. This graph is not a prediction or projection of performance of an investment or investment strategy.

Open price: The price at which the stock begins trading that day.

Previous day close: the price at which the stock closed the previous day. With this information and the opening price, you can quickly calculate whether a stock or fund is making or losing money.

Day range: The range of the stock price, expressed as the highest and lowest price of the stock over the course of the day.

52-week range: A running tally that tells you the highest and lowest price for the stock over the past year. Some charts may break it out, into the 52-week low and the 52-week high.

Bid and ask price: The bid is the average buying price for a share, and the ask is the average selling price for a stock. The prices are determined by supply and demand on a given day. The difference between the two prices is called the bid-ask spread. A big spread means a lack of liquidity in the market for the shares. A narrow spread means strong liquidity.

Good to know: Traders make money from the difference between the bid price and the ask price of a stock.

P/E ratio: This is an important indication of the valuation of the company. A high PE ratio for the company, relative to the other companies in its peer group, may indicate the valuation is too high.

Valuation: The dollar value assigned to the company. It’s simply the number of outstanding shares the company has, multiplied by the most recent share price.

Volume and average volume: The volume tells you how many shares are actually trading that day. The average volume tells you the average number of shares that trade during a day.

These numbers are important because high-volume trading days, or days in which more shares are trading than average, may indicate some news or event related to the stock.

For example, when a stock price increases while trading at a high volume, it may indicate a lot of demand for the shares. By contrast, when a stock price falls with a high trading volume it may indicate a lack of demand, as investors seek to dump their shares.

Similarly, low trading volume compared to the average, even with price increases, can suggest investors are losing interest in a stock.

Other kinds of stock charts

Line chart vs. candlestick chart

There are numerous ways to present stock price information. In addition to the line chart, there is also a candlestick chart.

A candlestick chart depicts the price change for the day:

Graph is for educational purposes only. This graph is not a prediction or projection of performance of an investment or investment strategy.

The candles in red indicate days when the share price falls. The candles in green show days when the stock has increased in value.

Get to the “chart” of your investments

So the next time you want to know how your investments are doing, turn to a stock chart.

It’s packed with information that can take the mystery out of your portfolio, and can help you understand if you’re on track to meet your financial goals.

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By Jeremy Quittner
Jeremy Quittner is the senior writer for Stash.

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