Understanding Stock Charts
Beginners Guide to Stick Charts
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Understanding stock charts is the first step towards choosing which stock you want to purchase. I use tradingview.com and I’d recommend you create an account there as well. The tradingview app lets us view, at a glance, everything in depth. They have a mobile version as well and, since I’m always on the go, this is primarily what I use. With an account at tradingview.com, you can create your own personal watch list for stocks you want to keep an eye on. You will be able to keep track of all the positions throughout the week.
Visit Tradeview to use the tools shown in this article.
From your home screen, you can search for stocks by ticker symbol. Although the stock page has a lot of valuable information, we actually want to select the “Full Feature Chart” option. Once you pull that up, it defaults to a basic line chart. Practically every platform around, from RobinHood to Yahoo Finance, uses this type of line chart. In my opinion, these charts are not as helpful as a candlestick chart.
If you have never studied a candlestick chart, this view might look confusing but we’ll be discussing, in detail, what these mean in an upcoming lesson. For now, just know that we can get a lot of really valuable information from both the individual candles and a group of candles.
Using stock charts
Along the chart’s y-axis you will find the stock price and along the x-axis is the timeline. You can zoom in and out along either timeline to get the information you want. By default, tradingview gives you the daily time frame. Each bar represents the price action for one day.
Different types of trades and traders require different timelines. Your personal schedule and how much time you are willing to commit to trading can really change your timeline. If you are more of a long-term investor and you want to be very hands-off, you would be looking at the daily, or even weekly or monthly, time frame. You can zoom pretty far out and see how the stock has performed over the last decade or more.
If you have a short-term, hands-on style and you will are looking at getting in and out within a few days or weeks, you will want to look at a daily time frame instead. You might even want to look at just a four-hourly or hourly time frame. Looking that closely at the stock price activity can be a little overwhelming so changing the “extended hours” setting to off can really clean up our chart. When you turn off the extended hours, you take out any of the price action that happens before or after the market opens, your chart only shows what happened during normal market hours.
How Day traders can use this tool
Day traders will probably want an even closer look at the price action and will that looking at a 5 or 15-minute time frame is useful. There is a one-minute time frame but, if you go there too often, you are going to get deep into micro-microscopic views. Sticking with the 5 or 15-minute time frame gives you a better picture of what is going on for day trading.
In general, you always want to be looking at the big picture. It doesn’t matter if you are day trading or swing trading, you want still look at the daily time frame every single day. A general rule of thumb is that the higher time frames have higher precedence, or a higher priority, over the lower time frames.
In future lessons, we will talk more about how to analyze a candlestick stock chart. We’ll discuss the anatomy of what a candlestick actually is and what kind of information we can glean from them. Also, we will learn how to do a technical analysis, a study of the overall price action so we can forecast future trends.