Learning to Read Stock Charts

A stock chart is a graphic representation of a stock’s historic price and volume action over a specified period of time—a day, a month, a year. The predictive value of charting is that chart patterns repeat, because they reflect predictable human action based on fear and greed. Fundamental analysis helps you select which stocks to buy and charts help you determine when to buy it.

    Learn the basics. Charting is based on the Dow Theory, whose fundamental principles were set forth by Robert D. Edwards and John Magee in “Technical Analysis of Stocks Trends.” It’s heavy reading but gives you a solid foundation.

    Select a charting method–bar/OHLC (open, high, low, close), candlestick or P&F (point and figure). No one method is better than another. There are good books on each.

    Study the method you select. There are no short cuts. The more effort you put into understanding it, the better the results are likely to be.

    Select the timeframe in which to trade. The same chart patterns repeat in different timeframes, from monthly to intraday. Some people trade intermediate trends that last several weeks to several months, while others choose to “day trade.”

    Apply what you learn to past and present situations. Books and manuals provide good illustrations of the most typical examples, but the reality is much more varied and constantly evolving.

    Make a list of past stock winners and analyze their charts to identify the right buy and sell points.

    Analyze your own trades to see what you did right and what you could have done better or differently.

    Review as many live charts as you can to train yourself to recognize chart patterns as they form.

Tips & Warnings

  • Once you start learning chart patterns, you may start seeing them all over the place. It takes a trained eye to identify a valid chart pattern that is likely to work, which can only come from experience. The more you practice, the better you will become.

Related posts:

  1. How to Read Stock Charts for Beginners
  2. How to Work With One-Day Stock Charts
  3. How to Read the Stock Market Chart
  4. How to Read Stock Market Charts
  5. How to Read Futures Charts
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