How a best stock chart can be read and investing for beginners?
The best stock picking is challenging, and the first step toward success is to understand stock charts. Here’s our guide to how to interpret a stock chart for beginners.
A method for selecting individual stocks is given in the article below. If you’re a new investor, we recommend investing in index funds or mutual funds to get started. When you learn more about the stock market, this will keep the portfolio diversified and reduce risk.
We don’t recommend you devote more than 10% of your portfolio to individual stock picking if you plan to invest in individual stocks. This article focuses on how individual businesses can be judged.
Read on if you are a novice investor and want to learn a primary instrument for choosing individual stocks.
You’d probably agree that reading a stock chart isn’t all that interesting if you’re new to investing (or even if you’re not). But if you want to find suitable investments for your portfolio, it is a key ability you will need.
Ok, welcome to how beginners can read a stock map!
I’ll break down the basic stock chart in the article and explain the main things you need to concentrate on.
Mix this with some value investing experience and you’ll be well on your way to stock picking.
What is a the best stock chart?
Google Finance is my preferred website for looking at simple stock results. I used to use Yahoo! Finance, but I believe there is a slicker interface on Google.
Let’s take a look at a standard inventory map now. For this post, we’ll use Apple.
If you don’t already remember, the sequence of letters after the business name is the sign of the ticker. On the stock exchange, it identifies the company.
We’ll look for AAPL in this case, which is Apple’s ticker symbol. This is what we are getting:
Next, to extend the map to the full screen, press the button and it will look like this:
I’ve just taken the liberty to filter for the last 10 years, which you can easily do by pressing the appropriate button (which I’ve highlighted for you).
So here we’re looking at Apple’s last 10 years of inventory. I bet you wish you had arrived in late 2008!
Now let’s dive into the various sections and parts of the stock chart so that you can start reading one like a pro.
With Robinhood, you can easily buy the best stock on your own
By analyzing stocks with the use of quick-to-open maps, the Robinhood app will make trading simpler for investors. Below is a screenshot I took from my account at Robinhood:
As you can see, from one day all the way to five years’ worth of data, I can easily filter the table. What you can’t see is that anywhere on the map I can tap my finger and get historical rates. It’s actually pretty good.
Robinhood also has a very good news source, too. It’s sort of like a Facebook stream, just for stock news and perfect for keeping market trends up to date.
Trades with Robinhood cost $0 if you’re trying to invest on your own.
How to read a chart of a stock
1. Identify the line of the pattern
This is the blue line that you see every time you hear about a stock. Does it go up or down right? Although the trend line seems like common sense, I want to point out a couple of items so that you can appreciate it in a little more detail.
Next, realize that stocks are going to take massive dives and make tremendous climbs as well. You’ll know that you have to keep your emotions in check to be a good investor if you have followed the advice I gave in the value investing piece.
Don’t respond in a positive or negative way to big drops or massive gains. You can only use this part of the stock chart to see what’s going on.
The trend line can, in fact, lead you to dig deeper. Apple as a company, for example, really took off from 2009 to 2012.
But from 2012 to 2013, what happened? The market started to sink, with shares falling more than 4 percent at one time!
This is where it comes in handy with your trend line. News comes and goes, but it’s something to pay attention to when news coincides with a dramatic shift in the trend line.
If you’ve seen anything like this happen, I would advise you to find out what the business is all about. Many powerful businesses can, but not everyone can, recover from hits like this.
For those who don’t remember, Apple witnessed a few big changes right around this time:
First, Steve Jobs, the longtime CEO, resigned (2011). Apple also noticed around 2012 that, amid a rising smartphone market, their profit margins were dramatically declining. Finally, they tried to extend the mobile to developed countries, where it was just too costly to compete.
Combined with many other variables, these factors led to a decline in the stock price.
But with the company, new CEO Tim Cook made some strategic movements to turn things around, and the rest of the trend line demonstrates that.
The lesson here is to use your trend line as a high-level, first-glance predictor of something to look at.
2. Look for assistance and resistance lines
The lines of resistance and support are the next thing you’ll want to look at.
There are ranges at which the stock persists, for a given period of time. A support level is a price that a stock is unlikely to go below, whereas a resistance level is one that is unlikely to go above.
That is before any drastic change, such as a decreased profit margin, occurs.
Think of these lines at a bowling alley as bumpers. The ball bounces back and forth between these inflated barriers when you’re bowling.
Within these lines of support and resistance, a stock’s price does the same thing.
The purpose here is to know when to purchase and when to sell. Let’s have a look at the stock chart of Apple again to see an example:
These are subjective and everyone interprets them differently, but the process is important. Next, they recognize that, depending on their investment horizon, everyone can draw lines of opposition and support differently (how long they plan to hold the stock).
So you may not draw as many lines of support and resistance if you intend to keep it for a long time, so you don’t care about the ups and downs as much. But if you’re a short-term trader, you can draw more from a shorter period of time to evaluate patterns.
For each of the trend lines, let me break down the image above:
- The very first line of support shown is Line A. I will feel assured that the stock price would not go below this point, based on patterns before this. I’d probably consider buying at or above this point.
- My first line of resistance is Line B. For now, I see the stock has peaked at that stage and I wouldn’t expect it to go higher. I will probably consider selling at or slightly below this point.
- The stock has bottomed out again, as you can see with Line C, thus providing a new line of support.
- Line D demonstrates that the stock price has dramatically increased and I’m comfortable creating this as a new resistance line.
- With Lines E, F, G, and H, you can see the pattern continuing, adding new lines of support and opposition as time goes on.
Don’t fret if it seems complicated. That’s it. And a great deal of it is guesswork.
If I were to buy stock in Apple today, I would remember that my most recent resistance line (Line G) was priced at just over $130 a share and my most recent support line (Line H) was priced at around $90 a share.
I can confidently conclude that the stock price will not fall below $90 knowing this, and it should not go above $130, barring any big news or changes to the company.
Currently, at $113 per share, I feel that this is a reasonable price point and will probably make a buy. I could also wait to see if, in order to feel even better, it fell below $110.
Knowing the resistance lines will help you decide when to purchase a stock or sell it. Bear in mind, however, that it’s subjective and it’s not going to give you a straightforward road map of exactly what to do. Some of your own research and judgement will have to be included.
3. Know when dividends and stock splits occur
At the bottom of the table, you’ll see whether and when a dividend was paid by the company, as well as if a stock split ever occurred:
A dividend is when the company (the board of directors) chooses to give back to its shareholders a part of its earnings. You get a small chunk of the profit if you own the stock.
Some firms give dividends, some don’t. Just because a business issues a dividend or doesn’t, doesn’t mean it’s not worth investing in. There are plenty of other considerations to consider.
Some businesses also prefer to concentrate on growth, so instead of giving it back to the shareholders, they will reinvest their earnings. Without sacrificing growth, other companies (like Apple) can pay dividends.
Apple started issuing quarterly dividends to its shareholders midway through 2012, as you can see from the picture.
In 2014, you can also see that there was a stock split. A stock split is a strategic move by the Board of Directors of the company to sell more stock shares to the public.
In this scenario, Apple made a split of seven to one stock (noted as 7:1), which means you will now have seven for every share of AAPL that you owned before the split. So, if I held 100 APPL shares prior to the split, I’d have 700 now.
The company’s worth doesn’t change, but maybe the share price. If the price is not in line with rivals or to draw smaller investors, businesses will always do this (if the share price decreases).
After the break happened, you can see the uptick in the trend line, too. Often, more investors invest (since the share price is often lower) when a stock split occurs, which raises demand and, in many situations, the overall share price.
4. Understand volumes of historic trade
A lot of thin, vertical lines can be seen at the very bottom of the map. This is a pattern of the amounts that the stock is sold at.
Volumes are nice to know, but when buying a stock, they shouldn’t be the only deciding factor. Trading volumes typically increase when big (good or bad) news about the business is available.
It can also change the price of the stock rapidly as volumes increase. Let’s look at an instance:
You can see that there was a high amount of trading activity in line A, which corresponded to a decline in the stock price. That day, the news could have caused people to panic (aside from the entire economy crashing that year).
You will see a small rise in trading volume in Line B that correlates to an upward trend in the stock price.
Don’t necessarily believe there’s going to be a connection between stock price and market volume, but before making a decision, it’s nice to know what the volumes were in the past and what they are now.
When buying or selling, greater ease comes with high volumes. If the stock is exchanged by a lot of people that day, you should be able to buy or sell it easily.
Tools for the best stock trading
You may be looking for a more effective method until you’re comfortable reading a stock chart and you feel like you have the basics down.
When you want to take advantage of robust stock charts and trading tools, E*TRADE is extremely strong and hits the mark. In my view, when it comes to trading, their instruments are light-years above the rest.
No, their price is not the highest and their platform is not as *sexy* as some others, but E*TRADE is the way to go when you really want to get into technical research. For more detail, make sure to read our full analysis of E*TRADE. If you want to take your trading game to the next level, though, I highly recommend them.
These are the fundamentals of how a stock chart should be read. You should be able to examine the historical behavior of a stock at a high level once you’ve mastered these techniques.
Note that previous output does not equate with potential price signals. That means that just because Apple recently reached $130 per share doesn’t mean it’ll be back. There is also nothing to guarantee that the price won’t double. You simply can’t remember.