Trading Education Trading Help How To
- By Lucien Bechard
- Updated March 4, 2024
8 min read
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You need to know how to read trading charts to grow your capital and live off your trading. Master chart reading, and you can now ‘see the market. I’ve laid out the keys below to give you a good grounding.
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Table of Contents
- How to Read Stock Trading Charts
- Time Frames
- How to Read Daily Stock Trading Charts
- Candlestick Charts
- How to Analyze and Read Trading Charts
- Time Frames
- What Time Frame Do Professional Traders Use?
- Other Bullish Patterns
- Other Bearish Patterns
- Final Thoughts: How to Read Stock Trading Charts
- Frequently Asked Questions
How to Read Stock Trading Charts
- Here are the simple steps on how to read tradingcharts:
- Understand thatprice action and candlesticks are the most important indicator
- Study the most popular candlestick patterns and reversal patterns
- Look for big patterns like cups and handles, ascending triangles, head, and shoulders
- Look for smaller patterns like bull flags and pennants
- Search for single reversal patterns such as dojos, hammers, spinning tops, shooting stars
- Look at two pattern reversals, such as haramis and engulfing patterns
- Watch for reversal three pattern completion, such as morning stars and evening stars
- Connect horizontalsupport and resistancelevels
- Connect highs and lows to determine the overall trend of the stock
Time Frames
Trading charts can view data over different intervals, such as monthly, weekly, daily, and intraday. Intraday charts commonly used include hourly, 15-minute, 5-minute, and 2-minute charts.
Which chart is best for intraday? It is the most popular hourly chart, but some traders swear by tick charts. It depends on your trading style and strategy.
Even if you day trade, you still want to keep up with the longer-term trends and understand how to read stock charts for day trading.
Although not commonly used, monthly charts provide data for years or decades. Likewise, weekly charts offer longer-term data analysis, usually for over six months.
Check out ourtrading service to learn how to read trading charts with different styles.
How to Read Daily Stock Trading Charts
What’s a daily chart? It’s one of the most commonly used charts for analyzing intermediate to short-term periods.
A daily chart works well to analyze periods of over six weeks. It is also an ideal chart to “read” the market.
The following price data is commonly displayed on charts, with each bar or candlestick representing your selected time interval.
- Opening Price: The price an instrument first trades for a given time interval.
- High Price: The top price of an interval’s trading range, offering price resistance.
- Low Price: The bottom of an interval’s trading range, providing price support.
- Closing Price: The price an instrument lasts trades before the subsequent time interval begins.
Ouronline trading courses teach you different trading strategies to use the daily chart.
Candlestick Charts
The candlestick chart resembles a bar chart in many ways. Both relay the same information. However, a candlestick chart focuses more on opening and closing prices.
Meanwhile, a bar chart draws more attention to the high and low prices. Understanding candlestick patterns will be your best ally in learning how to read trading charts.
What do the candlesticks mean on a stock chart? For starters, it depends on your chosen time interval. On a monthly chart, each candlestick or bar represents a month.
Likewise, on a weekly chart, each one represents a week. Then, on a daily chart, it’s a day. On an hourly chart, it’s an hour, then so on, right down to ticks.
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How to Analyze and Read Trading Charts
Let’s explore how to read candles in more detail since this chart is popular for advanced traders. The thin vertical line on a candlestick chart represents the high and low prices, like on a bar chart.
However, instead of horizontal lines for open and closed prices, the candlestick chart uses a wider bar called the “body.” Meanwhile, the highs and lows, called “wicks,” stick out of the body at both ends, resembling candles.
If the price drops below the opening price, the body appears red (or black). Conversely, if the price rises above the opening price, the body appears green (or clear or white).
If nobody appears, it signifies that the price opened and closed at the same amount.
Despite similarities, a candlestick chart gives a better view than a bar chart of the emotions driving the market.
Once you recognize the patterns, candlestick chart analysis indicates trends of optimism or panic selling.
Time Frames
Most candlestickpatterns occur over a short term of one to three days. Also, the pattern’s location within the trend bears significance.
Day traders find them invaluable. Therefore, it’s necessary to know how to read stock charts for day trading to recognize the patterns.
Popular patterns include pennants,cups and handles, head and shoulders, and ascending or descending triangles.
So, which candlestick pattern is bullish? Several bullish patterns exist. For example, a bullish engulfing pattern reflects when the bulls take control.
It appears when a long green candlestick body follows a candlestick with a short red body. This patternsignalsthat the price could rise higher.
Patterns are extremely helpful when it comes to tradingpenny stocks along with large-cap stocks. A safepenny stocks listwill always get plays based on the charts.
What Time Frame Do Professional Traders Use?
- Professional day traders use daily charts, 1-hour charts, and 5-minute charts for setups.
- Then, they use 1 minute for entries and exit on 1-minute or 5-minute charts.
- Professional swing traders use 1 hr chartsch1-hr daily and 5 min c5-minute for setups.
- They enter in 1 minute or 5 minutes. Then exit on a 1 hr or daily chart
- Long-term traders use daily, weekly, and monthly charts and exit the same depending on how long-term they are
Other Bullish Patterns
- Belt Hold
- Doji Star
- Harami
- Harami Cross
- Hammer
- Morning Star
- Morning Doji Star
- Piercing Line
- Three White Soldiers
Likewise, multiple bearish patterns exist. For example, a bearishhanging manoccurs during an uptrend. The candlestick displays a long lower wick at least two times longer than the body.
Also, it exhibits barely any upper wick, giving it the appearance of a hanging man. Check out ourlive trading rooms to see candlesticks in action.
Other Bearish Patterns
- Belt Hold
- Engulfing
- Harami
- Harami Cross
- Shooting Star
- Dark Cloud Cover
- Three Black Crows
Final Thoughts: How to Read Stock Trading Charts
Nearly all charting software features the option of candlestick charts. And most provide real-time streaming data for using trading charts live.
Also, many brokerages offer free candlestick charts as part of their complementary platforms.
Additionally, somecompanies, like TradingView, offer free online trading charts. View a free charthere.
Frequently Asked Questions
What Chart and Time Frame Is Best for Trading?
What Are Line Charts?
A line chart is the most simple of the chart types. The line constitutes the closing prices for a set time frame. Although it doesn't provide as much information as most charts, it highlights closing prices. Line charts help traders see trends more easily. The reason is that it focuses solely on what many traders consider the most important price data.
What Are Bar Charts?
A bar chart adds even more price data by including the daily price range. Therefore, you still get the closing price. But it also incorporates the opening, high, and low prices. Bar charts display vertical lines that begin and end with the high and low prices. Meanwhile, short horizontal lines on the bar show the open and closed prices. The open price is located on the left side of the bar. At the same time, the close price is to the right. If the price closed lower than it opened, the bar shows red. Conversely, if the price closed higher than it opened, you see a green (blue or black bar).
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