How to Read Stock Charts for Beginners: Candles, Volume, Trends

What does a stock chart show?

A stock chart is a picture of past trades. The line along the bottom shows time. The scale up the side shows price. Each mark sums up the trading in one period, such as one day or five minutes.

Before you look for patterns, check five basics: the company, the exchange, the currency, the dates and the interval. The interval is the time each mark covers. A 3-month chart with daily candles has one candle for each trading day. A 1-day chart with 5-minute candles cuts one day into small slices. A pattern on one chart can vanish on the other.

The same company can trade in more than one place. A Canadian listing in Canadian dollars is a different chart from a US listing in US dollars.

Most apps offer three chart types:

• Line chart: joins the closing prices. It is clean, but it hides what happened during each day.
• Bar chart: one bar per period, from the high down to the low. A small tick on the left marks the open, and one on the right marks the close.
• Candlestick chart: the same four prices as a bar, drawn as a box with thin lines. Many traders use this one.

How do you read a candlestick?

Each candlestick shows four prices for its period. People often call them OHLC:

• Open: the first trade price.
• High: the highest price.
• Low: the lowest price.
• Close: the last trade price.

The thick part is the body. It runs from the open to the close. The thin lines are the wicks. They reach up to the high and down to the low.

Colour tells you one thing only. A green or white candle closed above its own open. A red or black candle closed below its own open. Apps let you change colours, so check the legend.

Notice the gap, too. Tuesday closed at $49, but Wednesday opened at $47. Yesterday's close is not a promise about today's first price.

What does volume tell you?

Volume is the number of shares traded in a period. It usually shows as bars under the chart. In the table, Tuesday's 160,000 shares mean more trading than Monday's 100,000.

Every trade has a buyer and a seller, so volume is not the number of buyers. High volume means many shares changed hands. It does not tell you who was right, how long they will hold or where the price goes next.

Traders often note whether a big move came with heavy or light trading. That is useful context, but it is not a signal on its own. Company news, results and changes to an index can all lift volume for a day. Compare days of the same length, because a half-day session or extra trading hours change the count. Our guide to stock market opening hours explains sessions and holidays.

How do you spot a trend, support and resistance?

A trend is the general direction of the price. In an uptrend, each high and each low is higher than the one before, like steps going up. In a downtrend, each high and low is lower. When the price moves inside a band with no clear steps, people call it sideways.

Many traders also mark support, an area where falls stopped before, and resistance, an area where rises stopped before. These marks help you ask questions. They are not real floors or ceilings. A price can break through them, jump past them on news, or cross them for a moment and turn back.

If you draw a line, write down your rule. Which chart and interval? What counts as a break? What would show your idea was wrong? A line that you redraw after every move cannot be tested.

What is a moving average?

A moving average turns recent prices into one smooth line. A simple 3-day average adds the last 3 closes and divides by 3. From the table: ($52 + $49 + $48) ÷ 3 = $49.67. The next day, the oldest close drops out and the newest one comes in.

Charts often show 20-day, 50-day or 200-day averages. Because the line is built from past prices, it always reacts late. A price crossing its average is something that happened, not proof of what comes next.

Some traders read a price above its average as a sign of an uptrend, and a price below it as a downtrend. That describes what already happened. It does not tell you what comes next.

Change the number of days and the crossing can move too. So choose your rule first, before you look for the answer you hope to see.

What can make a chart misleading?

The price scale changes what you see. Say a stock rises from $10 to $20, then from $20 to $30. Both moves add $10. But the first is a 100% gain and the second is a 50% gain.

On a normal scale, the two moves look the same size. On a log scale, equal percentage moves look the same size, so the second move looks smaller. A tightly cropped price axis can also make a small move look huge. Read the numbers on the axis, not just the shape.

Two charts of one stock can still differ. One may adjust old prices for stock splits or dividends, and another may not. One may include trades outside normal market hours. Some prices are delayed. If a jump looks strange, check the data source and the company news before you build a story around it. A stock split, for example, can explain it. A split changes the share price but not the company's total value, as our market capitalization lesson shows.

How do you practise reading a chart?

Describe first, guess later. Try two sums with the table:

• Tuesday, open to close: $51 to $49 is a fall of $2. That is $2 ÷ $51, or about 3.9%.
• Monday close to Wednesday close: $52 to $48 is a fall of $4. That is $4 ÷ $52, or about 7.7%.

Wednesday's green candle hides a bigger fall. Over the three days, the price fell about 7.7%.

Then use the same short routine on any real chart:

1. Check the company, currency, dates and interval.
2. Read the last few candles: open, high, low and close.
3. Look at the volume.
4. Describe the trend in one sentence.
5. Write down what would prove your reading wrong.

Next lesson: what paper trading is, so you can practise reading charts with virtual money. To learn the common candle shapes, read how to read candlesticks, or see how traders test chart rules in technical analysis basics. To practise on live charts with virtual money, see our stock market simulators guide.