How to Read Stock Charts: Quick-Start Guide for Beginners

The puzzle for many has been sorted out in this very post. Stock market graphs don’t have to be a mystery again after thoroughly going through this post. Here’s how to read it for any stock you can come across.

All you need do now is go through this post with undivided attention and make use of our comment section if you have any questions and needs further guidance.

How to Read Stock Charts: Quick-Start Guide for Beginners

Stock charts look to be a jumbled mess of lines, colours, figures, and abbreviations at first sight. Reading them becomes a lot more bearable if you split them down into distinct portions.

To be sure, understanding how to do in-depth stock research isn’t essential to begin investing (learn how to invest in stocks; no technical analysis required). However, knowing the fundamentals of stock charts can help you make more informed financial selections.

Stock Chart Component

Google Finance is one of the easiest methods to learn about stock charts. Simply searching a company’s ticker will yield a rudimentary chart like the shallow end of a pool during a swim lesson. (Don’t know what the ticker symbol for the firm is? You can look it up on the internet.)

Consider Apple (AAPL), which is now the biggest stock by weight in the S&P 500.

Apple stock chart _ How to Read Stock Charts: Quick-Start Guide for Beginners
Apple Stock Chart

The stock price was $125.12 at the market close on March 2, according to this chart. The closing price is the final price a stock traded for during regular market hours, which are 9:30 a.m. to 4:00 p.m. Eastern Time. The price is expected to change during regular trading hours. The “after hours” price is $125.15, which reflects the price at which the stock was currently trading outside of regular business hours. (Learn more about after-hours trading and why it’s not a good idea for novices.)

We can also notice that the stock price “closed” $2.67 lower than it did the previous trading day (when the close price was $127.79), implying that the price decreased by 2.09 percent.

The red line depicts the numerous price changes that occur during the day, but selecting any of the other time periods depicts the different price changes that occur throughout that period.

The backbone of most stock charts is that line, which denotes price gains and drops over a given time period. The y-axis (vertical axis) displays prices in dollars, while the x-axis (horizontal axis) displays the amount of time that has transpired in the selected period. The grey line in this chart depicts how the stock performs during after-hours trading.

Basic stock chart terms to know

Open, high, low, and previous close are all possible values

The open is the initial price at which a stock trades during regular market hours, while the high and low are the highest and lowest prices attained by the stock during those hours, respectively. The prior close is the previous trading day’s closing price

The market capitalization

Market capitalization, denoted above as “Mkt cap,” is a measure of a company’s size based on the number of shares it has on the stock market multiplied by its current share price. In Apple’s instance, your eyes are not deceiving you: that’s a $2.1 trillion market valuation – one of the world’s largest. (To learn more about market capitalization, go here.)

The PE ratio

This is an abbreviation for the price-to-earnings ratio, which some investors use to determine whether a company is cheap, overpriced, or reasonably valued. (Learn more about the PE ratio.)

Dividends Yield

Dividend yield, denoted above as “Div yield,” informs you how much an investor may expect to earn in dividends (cash payments firms can make to shareholders) per year, given as a percentage of the current share price. For the previous four quarters, Apple’s quarterly dividend was $0.2050 per share. Multiply it by 4 (for a full-year dividend) to obtain $0.82, or 0.66 percent of the company’s current share price of $125.12. (Find out more about dividends.)

More advanced stock chart terms

Google’s charts are quite basic, which makes them an excellent learning tool. However, if you begin studying more sophisticated charts, you’ll come across a few additional terminologies that are important to understand.

Bid and ask

The bid is the most money that an investor is ready to spend for a stock. If you see a bid of, say, $124.61, that means that investors are now willing to buy the stock at that price. The ask, on the other hand, is the cheapest price at which an investor is ready to sell a stock. Sellers are presently selling for $124.65 a share if you see an ask of $124.65.

The difference between the two is $0.04, which is known as the bid-ask spread. Spreads are often narrower when there is a significant level of trading activity and a large number of willing buyers and sellers. Bid-ask spreads may be greater when there is less trading activity (for example, after-hours trading or trading in less popular companies). When spreads are wider, it may be more difficult for an investor’s deal to be executed or to go through at the desired price.

Volume, average volume and day’s range

Volume is the number of shares traded so far that day, whereas average volume denotes the average daily volume for a given time period. The day’s range displays the highest and lowest prices at which the stock has traded up to the current trading day.

Beta

Beta measures how volatile a stock’s price is in comparison to the stock market, which may indicate how hazardous the investment is. If beta is more than one, the stock has historically been more volatile than the stock market (usually represented by the S&P 500 or a total stock market index) over the selected time period. If beta is less than one but larger than zero, it has been less volatile than the market as a whole over that time period. However, as is always the case, previous success is not predictive of future performance.

EPS (TTM) and earnings date

EPS (TTM) is an abbreviation for earnings per share for the previous 12 months (or, officially, “trailing 12 months”), and it is the “E” in the PE ratio. This figure is calculated by dividing the most recently reported corporate earnings by the number of shares available on the stock market. The results date is the publicly posted time frame for when the corporation will release its most recent quarterly profits.

Ex-dividend date

To receive the following period’s dividend, you must become a shareholder (that is, purchase the company’s stock) before the ex-dividend date. If you purchase the shares on or after the ex-dividend date, you will not be entitled to the dividend for that period. When it comes to dividends, the delay does not pay.

1-year target estimate

This is an estimate of the stock’s price in one year. This figure frequently indicates a consensus of several experts’ one-year price projections, but keep in mind that even while analysts utilize complex methods to arrive at their estimates, it’s still just a forecast. And, as everyone who has ever been irritated by their local meteorologist knows, forecasts may be inaccurate.

Keep the following factors in mind as you continue to study stock charts:

  • It is unusual for a stock to move in only one way. Swings are common.
  • What looks to be a significant increase or decrease may not be. Examine the y-axis; price differences can range from a few cents to a few dollars, depending on the stock.
  • Even if a stock’s price rises in the near term, it might be a blip in the midst of a long-term drop. For a more full view of trade activities, look into longer time frames (one, three, and five years).
  • Not every chart will be appropriate for your time horizon. For someone who intends to invest for 20 years, poring at an intraday price chart, which looks at one day’s changes, makes little sense. A day trader, on the other hand, could find it useful.

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