Simple Overview on How To Read Stock Market Charts


Economic and financial charts are often plastered all over the media with little to no explanation. We are left to make assumptions that up is good and down is bad. Whilst that obviously depends on the what chart you are looking at but for stocks that basic assumption is true.

But here is simple but comprehensive way to read a chart tracking the price of a single stock.



The bars that you see down the bottom of the chart represent the volume of trades. It shows how much stock has been traded for a given time period. For this chart it is daily. The green means the price went up and the red means the price went down. The colours will vary from chart to chart. That is not a universal colour scheme but is popular.

The volume will generally be influenced by news about the company. Maybe resignation from the CEO, a higher than expected profit or some piece of legislation that will have an impact on company performance.


The Australian Stock Exchange (ASX) define technical analysis as ‘the study of past price movements of an individual share.’ Undertaking technical analysis involves looking at charts that map out the price movement of a share and identifying particular patterns.  The 2 major assumptions of technical analysis include:

  1. The market moves in trends
  2. Share price history repeats itself.





Below is a line chart for the ANZ Bank over a 12 month period. The line simply represents the share price at that point in time. A line chart is good if you want a quick snapshot of the company.

Chart from Yahoo7 Finance

Bar (OHLC) Chart

The bar chart or (Open, High, Low, Close Chart) is my personal favourite. As shown in the image below the bar on the left represents the opening price and the bar on the left represents the closing price. The colour will depend on movement for that period.. Below the blue means that the price dropped and red means that the price increased. The pointy ends at either end of the bar represent the highest and lowest price points that the share reached for that period. I say period as these bars can represent price movement for minutes, days, weeks, months or even years. You get to decide the time frame.



Many seasoned traders prefer to use the candle stick charts. This is because there are strategies that are specific to this type of price representation. The colour is really important with the charts as the look exactly the same. In this example the red represents price increasing and the blue with the price decreasing. The wicks at either end of the candle represent the highest or lowest price point that the share reached for the period.




The time period that you are looking at a share price can alter the trend significantly. Let’s have a look at the share price for ANZ in four different time frames.  

ANZ 3 months


ANZ 6 Months


ANZ 12 months



ANZ 5 years


All four Charts from Yahoo7 Finance


What a difference in charts from various time frames. The 3 month overview doesn’t tell us much a part from the price fluctuating a bit (sideways). After 6 months we can see that price is in a downward trend. However of the 5 years we the charts show that price has been in an upward trend.


Trend Analysis


There are three ways that a share price can be trending:

  • Up – Creating higher highs and higher lows
  • Down – Creating lower highs and lower lows
  • Sideways – All the above


If applying strict technical analysis to the charts (and we should be) we can see that only the 5 year chart has any strong trend.

Chart from Yahoo7 Finance


A common belief amongst traders and analyst is that a trend line is reliable for 3 touches. However I have found this to differ according to each company. As above we can see that there are 4-5 touches before the trend starts to fade.


When trading on trend lines we want to get in just after the bounce on our trend line. What traders look for is a confirmation bar that confirms the bounce (reversal). This signal occurs when the current bar takes out the high point of the previous bar that touched the trend line.

Example below


Chart from Yahoo7 Finance

Ensure that the bar that touches the line doesn’t go below the line and that it is a bullish bar. Do not enter the trade until you receive confirmation.


Taking profits


Now we know the signal to buy but how do we know the best time to sell? And what target should we aim for? Well remember the definition of an up trend? Higher highs and higher lows. Assuming that we are truly in an uptrend our target should be at least the previous highest price point in the cycle. The example below has greater details.




Chart from Yahoo7 Finance

As we can see we entered the trade at $20 after getting our confirmation signal. The previous high point was $22.  This is our target.

Using a stop loss


A stop loss (or sell order) sets up a command on your trading platform to sell your shares at a particular price point. This prevents us from taking any major losses when we are not actively in front of the screen.

Remember we want a risk ratio of at least 1:1 before we trade. So if we buy at $20 and have a target of $22, our stop loss needs to be set no less than $18. Risking $2 to make $2.

Trailing Stop Loss


A trailing stop loss can be an absolute weapon of an idea in your trading strategy. In the above chart we can see that we sold out at $22 taking a tidy 10% profit. But the share price continued to $24! To maximise returns we can move our stop loss as the share price changes.


So we buy at $20 and the share prices increases to $22. If we think that the price could increase we can now move our stop loss up to $21 and lock in a 5% profit. Than the share goes to $24. Now we move the stop loss up to $23 or $23.50 locking in more of that sweet profit. As we can see the share price peaked at $24 and we would have activated our stop loss at $23.50. Or a 17.5% profit. By implementing a trailing stop loss we have increased our return from 10% to 17.5%!

Long term trend lines

With this particular chart we can see that the trend line is continuing on its merry way creating new heights. The best part is that now we have even more information at our disposal to make more profitable trades. Let’s look at the chart below.



Chart from Yahoo7 Finance

The price has decreased again and has just bounced off our trend line. Next is our entry signal as the previous high has been taken out. We enter the trade at $21. Now our first target is the previous price peak at $24. But here is the thing with technical analysis. Patterns start to emerge. See the diagonal line covering the high and low of the first trade? Well the diagonal line next to it is the exact same length! And this continues throughout the uptrend between the troughs and peaks. This gives us a guide of how long the upside will last. Look a little closer. In each cycle it takes the share around 5 months to hit its peak. But about 4 weeks for it to hit the low point. Now this doesn’t happen all the time but it’s worth exploring on every trend line to see if it is applicable. Now our target goes from the previous high of $24 to $26. And we have a hit. We’ve just added a 23.5% return to our account in just 6 months. If we had a trailing stop loss we could have squeezed it to $27.50.


Down Trends


It probably doesn’t come as much of a surprise to learn that when we look for a down trend we are looking for lower highs and lower lows. This time though we draw our trend line on top of the bars as shown below.




Chart from Yahoo7 Finance

When using trend lines as the main indicator I tend to not get involved in down trend trading. This is because it’s too unpredictable and not worth the risk or mental exhaustion. But that is only related to going short based on the trend line. Later on I will discuss how you can use other indicators to predict the decrease of a stock price and even one where you don’t have to look at a single chart!

Support and Resistance


Support and resistance refers to the share price stopping and reversing at certain levels. These points are identified when the price of a share reaches a point on a number of occasions but can’t break above or below that price point. Let’s have a look at the example below.

Chart from Yahoo7 Finance

In the red circles I have highlighted the points of resistance. This means that the price is having trouble breaking through a specific value. In the first instance this level is $4.50. Notice how it hits the $4.50 (or abouts) and goes back down? But when it eventually breaks the $4.50 price barrier the shares goes up and when it comes down it now stops at the $4.50 mark. This means that resistance has now become support.


For me I don’t trade purely based on support and resistance levels. They just don’t provide enough information and as you can see above the price can hover above these levels before actually reversing or breaking through. Instead I use them as I nice to know for other trading strategies and treat them as potential warning or reversal signs.

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