How To Read A Candlestick Chart

The first step you need to take before you start investing or trading is understanding how to read a stock chart. While there are many types of charts available, the style that offers the most information (and therefore is the most useful) is the candlestick chart.

In the chart above (for Apple stock — see the symbol in the top left corner), the price per share of the stock is shown on the right hand side in the red box (ranging from ~$120 to $330), while along the bottom you will find the date range (in this case from 2010 to 2020) in the blue box. In this case each bar represents one month.

The green bars indicate that the price of the stock increased over the time period (in this case: one month: Dec 2019 — blue arrows). The red bars indicate that the stock decreased in price (Mar 2020 — see black arrow).

So what do these bars actually mean?

Let’s start by looking at the green bars. The bottom of the solid part of the bar is the opening price of the stock (blue arrow #1) which in this example is right around $176. Over the course of the one month time period, the stock increases in price and closes the month at the top of the solid part of the bar (blue arrow #2), or around $198. So what are the “sticks” that extend below and above the solid bar? These are called wicks and they represent movement in the stock beyond the open and close prices. So in this case, the stock actually dropped to ~$170 (arrow #3) at some point during the month and it also rose to ~$202 (arrow #4) before closing at $198 (arrow #2). These wicks give you the entire range that the stock had for the time period of the bar, while the solid part of the bar indicates the range for the opening and closing prices.

In looking at the red bars — because they represent a loss in price — the top of the solid bar is the opening price (in this case ~$218, arrow #1) while the bottom of the solid bar is the closing price (~$179, arrow #2) with wicks indicating movement upwards to ~$223 (arrow #3) and downwards to an absolute low of ~$170 (arrow #4) during this time period.

What Do The Bars At The Bottom Of The Chart Indicate?

These show the relative volume of trading and are color matched to the bars above. For instance, while trading was positive in Nov 2019, it was relatively slow (shown by the lower magnitude of the volume bar — blue arrow in the chart above). Looking a couple of months to the right, in Mar 2020 (red arrow above), you see a large increase in volume (as shown by the increase in magnitude) and the red color indicates that the stock price decreased in that time period.

Take a look at this video where I walk you through reading a chart:

Good stock charts are very customizable and allow you to set a number of variables including time periods for each bar (ranging from 1 year all the way down to 1 minute). One of the best free chart sites that I have found is Tradingview they do have a premium plan, but the free part is definitely sufficient to get you started. Use this link to get free access: HERE.

Leave a comment below on what you took from today’s charting basics.

Interested in learning more about John? Check out his story: HERE.

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