A Stock Market Chart Tells All

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Stock market charts present stock trading data in a graphical format

A stock market chart is a visual representation of a stock's trading history. As a stock trades throughout the day, each transaction consists of a single price and volume e.g. 100 shares at $7.75. After a specific time, you can identify an open, high, low and close for the stock and the number of shares traded. You can also identify the number of transactions but this data is a bit harder to get.

Shown below is a typical daily, stock chart. The stock is Microsoft Corporation. It has a ticker symbol of MSFT. Displayed is a stock market chart, which is displaying three months of stock price history, covering the time period from May 9 to Aug. 5, 2005. This data is presented in a typical Open/High/Low/Close (OHLC) and volume format. The blue line at the bottom, on top of the volume is the 50-day exponential moving average (EMA) of the volume.

Chart courtesy of StockCharts.com

So, you may ask, what does all this mean. When the stock market opens, the first recorded trade of a particular stock is considered to be the opening (open) price. As the stock trades during the day at some point there will be a price which is the lowest (low) and another price which will be the highest (high). The last trade of the day is considered to be the closing (close) price. This information as well as the volume or number of shares traded during the day is generally all of the data which is collected for each stock each day.

Another charting technique, invented by the Japanese, is the candlestick stock chart. Below is the same information as the above chart (Microsoft Corp., three months) represented as a candlestick stock chart.

Chart courtesy of StockCharts.com

In the above candlestick graph, the clear boxes represent days where the close was above the open while the colored boxes represent days where the close is below the open.

Now let us look at the same stock in a different time frame. Below is a three year weekly chart of Microsoft (MFST). Note that the right hand side of the three month daily chart (above) tells us that MSFT is going up while the three year chart is telling us that during the week of Aug. 1, 2005 MSFT hit a new three year high.

Chart courtesy of StockCharts.com

What can you see on stock market charts?

Stock traders use charts to identify trends and areas of support and resistance. To demonstrate this, a three year stock graph of Brilliance China Auto Holding (CBA) is shown below.

Four major chart patterns of interest are identified on this stock market chart.

Resistance: A price through which the stock has not been able to penetrate above. Penetrating above resistance is generally considered bullish.

Support: A price through which the stock has not been able to penetrate below. Penetrating below support is generally considered bearish.

Up trend or bullish move: The major trend of the stock is up.

Downtrend or bearish move: The major trend of the stock is down.

Chart courtesy of StockCharts.com

When you are beginning stock chart analysis, the patterns look complicated. However, after you view hundreds of chart patterns you will begin to see areas which offer higher probability trading potential. You can view free stock charts on most of the major charting websites. Some of these have been highlighted in our resource section. After you become familiar with the standard open, high, low, close chart you may want to start exploring candlestick chart patterns.

To learn more about a stock market chart take a look at the references in the technical analysis book review section. One book that contains a lot of information on stock charts is "Secrets for Profiting in Bull and Bear Markets" by Stan Weinstein.

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