Types of Stock Charts
Line Chart
The simplest chart type, showing only the closing price connected as a line:
- Pros: Clean and clear, easy to spot the big trend at a glance
- Cons: Does not show intraday fluctuations
- Best for: Identifying long-term trends
Candlestick Chart
Displays four price points:
- Open, Close, High, Low
- Red (or white) = Close higher than Open (up)
- Green (or black) = Close lower than Open (down)
One candlestick = one trading days price range. The longer the body, the larger the gain/loss; the longer the wick, the greater the intraday volatility.
Volume Chart
Shows daily trading volume (number of shares traded):
- Usually displayed below the candlestick chart
- Taller bars = higher volume
- Used to confirm the validity of price trends
For more volume analysis, see Volume Confirmation of Patterns.
Basic Structure of Candlesticks
Two Parts of a Candlestick
| Part | Description |
|---|---|
| Body | Area between open and close, reflects gain/loss magnitude |
| Upper Wick | Line from high to the top of the body |
| Lower Wick | Line from low to the bottom of the body |
Two Colors of Candlesticks
| Color | Meaning |
|---|---|
| Red (Bullish) | Close > Open, up for the day |
| Green (Bearish) | Close < Open, down for the day |
Basic Technical Tools
Moving Averages
Averages of stock prices over a period, connected as a line:
- 20-day: Short-term trend
- 50-day: Medium-term trend
- 200-day: Long-term trend (bull/bear boundary)
See Complete Guide to Moving Averages for more.
MACD
Used to identify trend changes:
- MACD golden cross (crossing above the signal line from below) = Buy signal
- MACD death cross (crossing below the signal line from above) = Sell signal
See MACD and RSI Combined for more.
RSI
Used to identify overbought/oversold conditions:
- RSI > 70: Overbought (potentially too high)
- RSI < 30: Oversold (potentially too low)
Volume
Confirms the validity of price trends:
- Price up + Volume increasing = Healthy
- Price up + Volume decreasing = Warning
Common Beginner Mistakes
Mistake 1: Using Too Many Indicators
Filling the chart with various indicators makes it harder to read. Beginners should start with just moving averages + volume. Visit our Tutorial Center for complete step-by-step guides.
Mistake 2: Only Looking at Short Timeframes
Looking only at 1-minute or 5-minute charts ignores the bigger trend. Start with daily charts, then check weekly charts.
Mistake 3: Overinterpreting a Single Candlestick
A single candlestick has limited meaning. Look at a series of consecutive candlesticks to identify trends and patterns.
Summary
Chart reading basics:
- Start with daily charts to see the big trend
- Moving averages are the most basic tool
- Volume is key to confirming signals
- Dont overload with indicators
Start simple and learn step by step. Ready to apply technical analysis in practice? Explore our Strategy Center. See also Technical Analysis Fundamentals and Trend Line Drawing Guide.