How to read stock charts

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A lot of investors are long-term oriented and there is a lot to be said for the reduction of risk with long-term investing, however, there is also a good portion of investors who are short-term investors as well.  Either type of investor will want to acquire a certain skill set, in regards to their investing ventures.  That one skill that can make all the difference in the world, when someone is trying to find out if the timing is right to buy or sell their stock, is understanding stock charts.

Reading stock charts is also referred to as technical analysis or the skill of putting together strategies for entry and exit points, by using indicators, reading candlesticks, resistance levels, support levels and much more.  It is most common to find yourself reading stock charts, if you are a day trader or playing a stock for quick profits.

Long term investors will use the charts as well but may use them for looking at buying or selling a stock towards the end of the year, when they are reallocating and rebalancing their portfolios.  The bottom line here is that eventually, you will probably end up reading a stock chart at some point in time if you are watching your investments.

How to set up a chart


If you are new to setting up charts and reading stock charts this is okay.  We will show you just one way to set up a chart and get you going with reading charts for your investments in the future.   The best part about this is it’s completely FREE.

If you go to http://www.freestockcharts.com/ you can run a FREE version of the chart system.  Once you are in and have the chart system going it will look something like the picture below.

stock chart

 

You might be wondering where to start with all the different widgets to look at right?  Don’t worry, we will guide you through the process one step at a time so you become familiar with how to operate the charts.

  1.  The first thing you will want to do is getting a stock you are interested in watching, to display as a chart.  If  you look at the grey tabs at the top of the screen… these are your stocks.  They can be changed in out by  selecting the XIV symbol highlighted in Yellow.
  2. If you LEFT CLICK on the highlighted XIV symbol it will lead you to a field where you can enter the stock symbol you are wanting to load onto the chart.  Just type in the stock symbol and select the stock that you want to view.

changing a stock 2

3. Now that you have your stock selected, the next course of action is to set the stock on a specific time frame. Anotherwards, you will want to track the price movement by every 1- minute, 5 minutes, 15 minutes etc. In order to set the time frame, LEFT CLICK on the drop down arrow on the 1-minute tab, next to the (add indicator tab) as seen in the picture below.

stock charts 3

You can select from a variety of time frames leading all the way up to (monthly).  You can choose shorter time frames if you are day trading as this will reduce your risk of losing money.  If you are wanting to stay in a trade for a longer period of time you may choose to go with longer time frames, such as weekly or monthly. This is completely up to you, just understand that the longer you stay in the trade, the more likely it is that something can go wrong and the stock could end up moving in price against you.

Now that you have the stock displaying for you on the chart and you have your time frame set, the next step is to understand what the red and green candlesticks actually mean.

What is a candlestick


A candlestick displays the high, low, opening and closing prices for a security for a single day and usually is viewed in the form of a red or green ticker symbol as seen on the charts below.

how to read the candlestick

 

 

 

 

As you are looking at the candlesticks in the picture above,  you may notice that the GREEN candlestick says (Buyers in control).  This means that investors are (BULLISH) on the stock and buying the stock, causing the price to go up.

The RED candlestick, on the other hand, reads (Sellers in control).  This means that investors are (BEARISH) on the stock and are selling the stock, causing the price to go down.

It is also important to understand that each candlestick will correlate with the time frame you have selected.  So for example, if you selected a 5 min. time frame for your chart, each candlestick would represent 5 minutes in price action. Now that you have an idea of how to read candlestick charts, it is time to move on to indicators.

Using Indicators on charts


The next step in setting up your charts, is to add indicators to your chart.  An indicator is a tool that can be added to any stock chart to help read information that might be relative to entry and exit points for buying and selling.  There are quite a few indicators that you can choose from and each indicator does something different in obtaining data from the stock you are reading on the chart.

For the sake of keeping this segment short and to the point, we will not cover what each specific indicator does.  We will cover each specific indicator in detail at a later time.  In order to add an indicator to the chart, you will simply LEFT CLICK on the (Indicator tab) and select the indicator of your choice as seen in the picture below.

Indicators

Now that we have covered how to set up the indicators on a chart you have the basics tools for looking at a stock’s price action.  If you want further information on candlesticks and how to read them, you can check out

If you want further information on candlesticks and how to use them along with technical analysis just CLICK here.   If you have any suggestions or strategies you would like to share for reading stock charts, please leave comments in the comments section provided.  We will try to cover more on strategies with indicators at a future date.  Thank You!

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