One must have sound knowledge of fundamentals and technical when they’re entering stock markets. The reason why we’re saying so is because here profit only comes to those who have knowledge with emotional control. Fundamental analysis includes assessing the company’s past financial performance, management history, future growth outlook, etc. On the other hand, technical analysis implies analysing and forecasting the price movement through the study of chart data, primarily price and volume. To put in simple words, Fundamental analysis helps in choosing what to buy while technical analysis helps in when?
Usually, it is hard for beginners find it to read stock charts than to assess company’s future growth. So, in this blog, we will be covering the 3 most popular ways of How to read stock charts or any technical chart from us who provide stock market courses for beginners or stock trading courses online.
Let us first understand, what are Technical Charts?
A technical chart, or simply a chart is a graphical representation of movements of a certain parameter, usually price supplemented by volume. A chart is plotted with respect to a period. When this chart is plotted for a stock, with price and time being the variables, it is called a stock chart. To put it simply, a stock chart is simply a price chart for a stock. One can add several parameters in this chart to derive other important information which eases decision making.
Now to view a chart, you need to first choose your charting platform. Here are our two free recommendations for a charting platform which would suffice the requirement of a basic as well as an advanced trader who is looking for stock trading courses online:
- TradingView
- Investing.com
**If you’re looking for derivatives charts, you can login to your demat account and open the contract chart from there. Some of the brokers also provide a TradingView charting option in that. If you don’t have a demat account as of now, you can always open one with us by emailing on info@goelasf.in.
Now let’s understand it more using a simple chart example:
- Stock name/ stock symbol – This field shows the name of the stock/derivative contract/commodity/currency/index or crypto. In this example we have opened the chart of Reliance Industries Ltd.
- View Type– With this setting you can decide the type of view you want for the chart. If you want only closing values of the period in chart, you can choose Line or Area chart, while if you wish to see the OHLC values, you can choose the candlestick chart. This here is a line chart showing prices plotted over a period. If you don’t know what OHLC values are, you can read this blog afterwards:
- Chart period – It shows time frame for which the chart data is provided to you. It can be daily, weekly, monthly, in hours, minutes and even 1 second. You can also enter custom time frame here too. In layman terms, it tells you about the interval after which new data should come. A daily chart will only summarise what are the OHLC values but to see what really happened throughout the day, you need to go for lower period, where you can see what happened in interval of 15 minutes each.
- Indicators – These are the technical tools which help in analysing the price movement of the instrument to determine its future more accurately. There are primarily four types of indicators – Trend indicator, Momentum indicator, Volatility indicator and Volume indicator
- Price – The price is plotted on the right side of the chart, indicated through a scale.
- Last traded price (LTP) – The LTP of a stock can be seen here. After the closing of last trade, the close value becomes the LTP. Here, Reliance’s LTP is Rs. 2471.60.
- Volume bar – Volume bar shows the comparative picture of trading of that instrument in that chart period. Volume refers to the total number of trades or trade volume on that day. The higher the volume is, stronger the sentiment for the buy or sell is. To understand it more clearly, say A bought 100 shares, then sold them, the volume accounted for that period is 200, irrespective of the fact that same 100 shares have been transacted.
- Time frame – It shows the length of chart data you want to see on your display to analyse. The cursor can be dragged here to adjust the amount of data you want to display over the chart.
- Tools – It has various tools like screener or code editor which are a lot of help to advanced traders when they analyse their charts with their own strategies.
How to Read Stock Charts?
Reading stock charts is a very broad topic, which cannot be covered in just one blog but rather requires one to do a stock analysis course. So, let us tell you 3 most popular ways to read a chart if you’re an absolute beginner.
- Line chart – A line chart plots the closing values of the period for the instrument. All the closing values of the period are joined to form a line which helps in identification of the trend easily. However, this does not provide high, low, and open of the price of the instrument. It is our recommended view for using technical strategies like chart patterns, moving averages, support resistances, Price Action etc.
- Area chart – Similar to line chart, this chart also plots only the closing values. The only difference here is that the area below the plotted line is shaded or coloured to make the viewer feel an essence of price as a region. This view is recommended for Dow Theory strategy, Bollinger Bands etc. E.g.:
- Candlestick chart – This is one of the most used chart views by all traders to read data. It gives us complete information about all four price points – Open, High, Low and close (OHLC). To learn more about candlesticks, you can refer to this blog: https://goelasf.in/magic-of-reversal-candlestick-pattern/
We hope that you enjoyed learning the basics of how to read stock charts as a part of free stock trading courses online. We’re sure that with this information you can make a head start and beat the retail with no knowledge. With practice one can master chart reading so keep practicing and analyse stock charts regularly. If you want to learn more about trading, you can check out our share market courses online.
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