To choose a good stock, it is very important to read and understand the stock market charts, for this you have to learn chart analysis. When traders watch live charts in the stock market, they do not understand when to buy and sell shares due to the ups and downs in the stock price.
Let us know today how to read and understand charts in the stock market?
By reading the share market charts, you can invest in stocks at the right time and sell them after some time to earn profit.
But to read and understand stock market charts, it is necessary to have knowledge about chart patterns, price movements, trend reversal, candlestick patterns, indicators and technical analysis.
We are going to talk about all these in detail next.
Even if you are a new trader in the stock market, after reading this post you will learn everything from reading, viewing, understanding, analyzing and trading the stock market charts.
First of all, let us know that-
What is a chart in the share market?
In the stock market, the chart is a graph to identify the market trend and see the price movement. Reading the chart gives information about the open, close, high, low price of the stock. You can trade (buy and sell) at the right time by chart analysis in options and intraday trading.
To read charts in the stock market, you must have knowledge of technical analysis.
By looking at the chart, you can detect trend reversal, that is, from where the stock price will start rising and at what price the stock can fall. For this, you have to know about the candles which together form the chart pattern.
And these chart patterns give you the signal to buy shares at a certain price. While trading on the chart, many trading signals are received which give information about future price movement.
How many types of share market charts are there?
There are three types of share market charts-
- Line Chart
- Bar Chart
- Candlestick Chart
Line Chart: Line chart is the simplest chart in the stock market. When you think of a chart, the first thing that comes to your mind is the line chart. In this chart, you get information only about price and trading volume.
Bar Chart: This chart gives more information than the line chart. The bar chart is made up of vertical lines. There are two horizontal lines on each vertical line which represent the open and close price. The upper part of the vertical line is called High and the lowest part is called Low.
Candlestick Chart: In technical analysis, this is the most popular chart among traders because you get the most information in the candlestick chart. Let us tell you that this candle chart is made up of different types of red and green candles. It is also called candle chart because the shape of the candles formed on the chart is exactly like a candle.
How to understand share market charts?
To read or understand the share market charts, first you need to understand the stock symbol, exchange, chart period, volume, trendlines, indicators, price movement and trend. Only then can traders read and understand the charts in the live stock market.
- First of all, go to Google and search the name of a stock.
- Now the chart of that stock will open in front of you.
- The ticker symbol will be visible at the top, such as NSE: ITC.
- If you look a little down in the chart, you will see the price of the stock.
- It will show how much the stock fell or rose today.
- Then the price graph will appear below it.
- You can view the stock chart on a daily, weekly, monthly or yearly time period.
- The graph will show time on the X axis and price on the Y axis.
- The closing price of that day will be visible at the end of the chart.
- If you look at the bottom of the chart, you will see Open, High, Low price on the right.
- And on the left you will see the company's market cap, PE ratio, dividend yield.
- In this way, by looking at the stock market chart, you get a lot of information at one place.
How to view stock market charts?
In the stock market, you can go and see the chart of any stock. On this you will get all the necessary trading tools to do stock market chart analysis like; trendline, volume, indicator etc.
Through trading tools, you can easily do technical analysis and create patterns on the chart with the help of trendline.
What should be seen on the chart?
- First of all, you have to see the market trend on the chart.
- Then you should find out the support and resistance levels.
- After this, you have to see the volume of the stock.
- You have to know the movement of the chart by just looking at the price action.
- Along with this, you must see the volatility of the market.
- A volatile market shows that there is uncertainty in buying and selling in the market.
- Apart from this, you have to see the liquidity, which shows the number of buyers and sellers in the market.
Keep in mind- If you look at intraday charts, then it is best to look at 5 minute or 15 minute time frame. But if you look at option trading charts, then you can also look at 1 minute or 3 minute time charts.
It depends on your trading, what type of trading you are doing. The longer the time, the bigger should be the time frame of the chart.
How to read share market charts?
- Read stock market charts to identify the trend
- Choose the time frame for trading
- Look for support and resistance levels
- Use trendlines
- Try to read chart patterns
- Trade by looking at candlestick patterns
- Exit the stock when the chart signals a reversal
Identify the trend to read the share market chart
To read the share market chart, first of all you have to identify the trend of the market. There are three types of friends in the market–
- First is uptrend (when the market is moving upwards),
- Second is downtrend (when the market is moving downwards)
- And third is sideways trend (when the market keeps moving up and down in the same range, it is also called consolidated market)
Try to trade in the same direction as the trend on the chart, otherwise you may also incur losses. Trends may vary with time intervals. If you look at a time interval of 5 minutes, there may be a downtrend and at the same time, there may be a strong uptrend on the chart of the same stock at a time interval of 1 hour.
That is why you must pay attention to the time frame. I say that do not trade against the trend. Some people do scalp trading in which the purchase and sale of the stock is completed within a few seconds. Because in this scalping trading, when the price of the stock goes up a little, the seller sells all his purchased quantity and this is his strategy to earn profit.
This means buying more quantity and then trading and then selling the entire quantity when the price of the stock increases by a few rupees. Many people earn money by trading in this way. These people do not care about the charts because they just have to look at the price.
If you do proper trading then it is most important to see the trend on the chart. Now the question arises that which time's chart should be seen in which type of trading, for that you need to understand the next point.
Look at support and resistance levels
While looking at the stock market chart, it is essential to look at the support and resistance levels. But before that you should know about support and resistance.
Support level: When the price of a stock goes up by touching a certain price level two or more times, we call it support.
Resistance level: When the price of a stock goes down by touching a certain price level two or more times, we call it resistance.
The chart of any stock is never formed in a straight line, but sometimes goes up and sometimes down. This happens due to support resistance.
You must know that if there are more buyers in the market, then the chart of the stock will go up and if there are more sellers in the market, then the chart of the stock will go down. It is these buyers and sellers who create support and resistance.
Some buyers are sitting at a particular price, similarly sellers are sitting at some other price. Their motive is that when a certain price is touched, they will sell their purchased shares. For them, support or resistance can be anything. And when that price is touched, the movement in the stock price is visible on the chart.
So if you understand the support and resistance on the chart well, then reading the stock market chart is a piece of cake.
Use trendlines
Trendlines are those lines that help you identify special trends on the chart. You can use them by going inside the trading tool. You have to create a trendline by looking at the support and resistance levels on the chart and by looking at the trend of the market.
As soon as you create a trendline, you see special types of chart patterns which provide you profitable trade opportunities in that stock.
The trendline can be anything horizontal or vertical, your only aim is to identify the chart pattern from that trendline. These lines also help you to find stoploss and target.
The more you practice putting trendlines on the chart, the more you will become an expert in reading the chart. That is why practice seeing different patterns by drawing different lines on the chart.
Try to read chart patterns
Before reading chart patterns, you must know about the types of chart cuts. So let's know–
1. Double Top chart pattern:
When the price on a chart touches the same price level or resistance twice and goes down, then the double top chart pattern is formed. This pattern looks in the shape of 'M' on the chart.
Similarly, when the price goes down after touching the same resistance 3 times, then it is called Triple Top chart pattern.
2. Double Bottom chart pattern:
When the price on a chart touches the same support twice and goes up, then the double top chart pattern is formed. This pattern looks in the shape of 'M' on the chart.
Similarly, when the price of the stock goes up after touching the same support 3 times, then it is called Triple Bottom chart pattern.
3. Reversal chart pattern
If an uptrend or downtrend is going on continuously and suddenly the trend starts reversing, then we call it reversal chart pattern.
Apart from this, there are many chart patterns like; Head and Shoulder Pattern, Bullish Engulfing Pattern, Bearish Engulfing Patte , Flag Pattern etc. but we will discuss all these in detail in another post.
As I mentioned in the above point, when you use the trendline, you will see different patterns being formed on different charts.
Apart from this, it is very important for you to understand the candlestick pattern to read the chart pattern properly, it is explained in the next point.
Trade by looking at candlestick patterns
You will be able to make candlestick patterns only when you have knowledge of candles, so first of all let's know about some candles-
There are two types of candles;
- Red candle
- Green candle
The formation of a green candle on the chart means that the market is bullish, that is, there are signs of an uptrend in the market. And the formation of a red candle on the chart means that the market is bearish and there are signs of a decline or recession in the market today.
Each candle is made up of two things- body and wick.
The body of the candle is the part that appears red or green to you, while the wick is the part that appears in the form of lines above and below the candle.
There are many types of candles, you must have seen on the chart that;
- Some candles are big and some are small,
- Some candles have a very big body and a very small wick,
- While some candles have a very big wick and a very small body,
- Some candles have a very big wick at the bottom and some candles have a very big wick at the top.
We will talk about the types of candles in detail in another post. For now, just understand that candles are very important in the stock market chart.
Candlestick chart patterns are formed by combining candles. Different types of candles are formed on different timeframes.
Candles are formed differently on the charts of each period, whether it is a 1 minute, 5 minute, 15 minute, hourly or weekly chart, you will see different candles being formed on all of them.
While looking at a candle on the chart, you have to look at 4 things– High, Low, Open, Close
High: The uppermost part of the candle is called high. By looking at the high of the candle, you come to know that the price touched this level on a time frame.
Low: The lowest part of the candle is called low. By looking at the low of the candle, you come to know that the price touched this level on a time frame.
Open: The candle starts forming from here.
Close: The candle ends here. After this, the next candle starts forming.
Till now you have understood about candles, now let us also know about some candlestick chart patterns–
Although there are many candlestick patterns, but here we are going to talk about the 3 most important candlestick patterns–
- Bullish Engulfing Pattern
- Bearish Engulfing Pattern
- Hammer Pattern
7. Exit the stock when the chart signals a reversal
When a reversal is about to take place in the market, the chart tells you first. Some people rely on the put call ratio and option change data but by then the chart has moved ahead a lot.
Always remember one thing of mine, always trust the chart more than any other data. I am not saying that looking at option chain data or any kind of data is not useful but if there are signals of a change in trend on the chart, then the data of the entire option chain will change completely in a few seconds and in the end the chart will turn out to be correct.
When any good or bad news comes in the market, its movement is first seen on the chart, that is why become an expert in reading the share market chart, one day you will become a successful trader.
I hope you found the above information useful for reading the share market chart. Now let's move on to the next important topic-
How to do share market chart analysis?
- Do your analysis in the direction in which the stock is trending.
- While doing option chain analysis, do not forget to look at the chart.
- Trust the stock chart more than any other data.
- Track the price movement of the chart.
- Analyze different candlestick patterns.
- Find the right entry level in the stock with the help of technical analysis on the chart.
- Find volume and momentum on the chart.
- Find trading opportunities on the chart with the help of moving average.
- Practice different trading tools on the chart.
- Choose your trading style on the chart and focus on trading psychology.
- Use different trading strategies for chart analysis.
How to see the chart in the stock market?
To see the chart of any stock in the stock market, you can see the chart of that stock by typing the name of the stock and the word price in front of it on Google. Tradingview website is the best to see the chart of the stock because there you have many trading tools available to use.
How to understand the stock market candle chart?
To understand the candle chart, you have to understand the names of different types of red and green candles and about them. Try to learn about which candle is formed when on the stock market chart.
Why is it important to read the stock market chart?
Reading the stock market chart gives information about price movement, volume, support resistance etc. and that is why reading stock charts is very important for all traders.
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