How to read a stock chart

A stock chart is a record of every trade that has ever happened in a security, compressed into a picture. You don't need to be a technical analyst to read one — you need to understand four things: price, volume, trend, and a small number of recurring patterns. Everything else is decoration.

01 — SectionPrice: the only thing that pays

Most charts default to candlesticks. Each candle shows four numbers for a given period (a day, an hour, five minutes): the open, the high, the low, and the close. A candle that closes above where it opened is typically green; below, red. The body shows where the trading happened; the wicks show the extremes. That's it.

02 — SectionVolume: the conviction layer

Below the price chart, volume bars show how many shares changed hands in each period. Big moves on big volume mean the market is participating — they tend to continue. Big moves on tiny volume usually fade. A breakout from a range on 3x average volume is meaningful; the same breakout on half-average volume is a trap waiting to happen.

03 — SectionMoving averages and trend

Two moving averages do most of the work. The 50-day captures the medium-term trend. The 200-day captures the long-term trend. Stocks trading above both, with the 50 above the 200, are in clear uptrends and tend to stay there. Stocks below both, with the 50 below the 200, are in clear downtrends. The famous "death cross" and "golden cross" are just the 50-day crossing below or above the 200-day, respectively.

04 — SectionPatterns worth knowing

• Support and resistance: prices the stock has bounced off (support) or stalled at (resistance) more than once.
• Breakouts: price clearing a multi-week range on rising volume.
• Pullbacks: a stock in an uptrend dipping to its 50-day moving average and bouncing.
• Gaps: a price jump from one period's close to the next period's open, usually on news; gaps either get filled or mark the start of a new trend.
• Double tops and double bottoms: two failed attempts at the same level — often the start of a reversal.

05 — SectionCommon pitfalls

Chart reading is easier in hindsight than in real time. Avoid these traps: drawing trendlines until the chart looks however you wanted it to, mistaking a single day's price action for a pattern, ignoring the broader market (most single stocks are correlated with the index), and confusing technical analysis with a complete strategy. A chart is one input. Earnings, valuation, news, and macro all still matter.