DECODING THE CODES: A Convenient Guide On How To Read Stock Charts

Individuals who were just starting their journey in investing might not know how to read stock charts. Though part of the investing experience, these investors may still find it tiresome by merely looking at it for its bombarded graphics such as unfamiliar acronyms, trivial color schemes, quite a few numbers, and a far-flung flow of lines. However, these graphics have their own purpose on why they were included on the graph in the first place, which is far from just being extraneous.

In this article, all the tips and information you need to get acquainted with to read stock charts will be laid down at the table, at least for the neophyte investors whom Google Finance would be the reference. After all, stock charts will be vital in deciding and investing confidently in stocks, though it is important to note that knowing them is not a prerequisite for investing.

WHAT ARE STOCK CHARTS?

To put it simply, stock charts are similar to maps. It is the primary tool for data analysis in terms of trades. It cleverly visualizes price movements by modeling the underlying financial instrument's historical market information on a graph. Its basic outline makes it easier to identify common and uncommon stock prices. More so, it is a graphical representation of the present and prospective stock prices on an X and Y axis plot. Stock charts display the historical and current market performance of a company's share capital. Volume and price markers and the ability to see price history patterns and trends to predict future price movement are essential features of stock charts. Charts assist market participants in mapping out the sales history and future direction to make more informed trades.

How to Read Stock Chart

Reading a stock chart is not the kind of reading you think. Reading a stock chart means drawing information from it. The steps on reading a stock chart are dependent on you. Of course, there are certain connections among its features, but reading a chart means getting information at a glance. Hence, the most important thing is knowing the features of a chart. If you know the features, you can read the chart and get meaning from it.

LOOKING AT AND DEFINING THE STOCK CHART TERMS AND JARGONS

If you are only starting to learn how to read stock charts, the most beginner-friendly website that shows stock price trajectory is Google Finance. Just type on any search engine "Google Finance," and that's it. Such a platform offers an investor a glimpse of the stock price trajectory of a specific company. For example, let's look at the largest movie and TV series streaming company, Netflix's Stocks (NFLX).

market hours. The price will most certainly degenerate throughout regular trading hours. The "after hours" price is $547.05, reflecting the price at which the stock had been traded beyond the regular business

We could also notice that the stock value "closed" $3.17 higher than that did the previous trading day (when such close price was $543.71), indicating a 0.58 percent increase. The green line illustrates the different price trajectories that occur all through the day, but selecting any of the other periods depicts the various price changes during that period.

The foundation of most stock charts is that line, which denotes price rises and falls throughout a specific time frame. The y-axis (vertical axis) displays prices in dollars, while the x-axis (horizontal axis) indicates the amount of time that has passed in the selected period. The gray line, therefore, in the chart depicts how the stock performs throughout after trading hours.

Now, let's try to define each of the words included in the picture below

PREVIOUS CLOSE. Refers to the closing price of a security on the previous trading day. The previous close could further refer to the value of a stock, bond, product, prospects, or any other security the previous day. As an investor, such data can help one see how a stock's price has changed significantly by contrasting its closing price between one day to the next.

DAY RANGE. The range pertains to the difference between the highest and lowest prices traded over a given time period. In this case, on August 20, the range just varied between $539.10 - $551.39.

YEAR RANGE. It is defined the same as the day range but only varies on the specified time period. In this case, so far in 2021, the range plays between $458.60 - $593.29.

MARKET CAP. The actual cumulative value of a company's stock on the market is referred to as market capitalization. It is frequently prefixed to market capitalization. Market capitalization is a simple way for investors to evaluate the size of a company, which can aid in determining the risk of investing in its shares.

Meanwhile, it is crucial to note for an investor that buying shares in large-cap companies is presumed to provide long-term rewards while posing less risk because the companies are well-established and steady. Mid-cap companies have high growth opportunities but are highly risky than large-cap stocks but perhaps not as risky as small-cap stocks. Due to inadequate financial resources, small-cap companies are frequently regarded as high-risk investment options.

VOLUME. Volume displays the number of shares traded so far that day. It can also be used to gauge market strength, as growing markets with increasing volume are typically regarded as healthy and robust.

P/E RATIO. The price to earnings ratio (PE Ratio) compares the stock value to the firm's annual net revenue generated per share. The PE ratio reflects current shareholder demand for a company's stock. A high PE ratio clearly shows increased demand since investors expect future earnings gains. It has years as units, which can be construed as the amount of years of profitability required to pay off the purchase cost. The PE ratio is also known as the "multiple" because it shows how much a shareholder is willing to pay with one dollar of earnings. In the denominator, PE Ratios sometimes are determined using estimates of next year's earnings per share. These are rightly considered when it occurs.

DIVIDEND YIELD. The dividend yield is the yearly dividend payouts to shareholders of a stock displayed as the stock's recent cost percentage. This figure tells you how much future income you can expect from a stock depending on the cost you could pay for it today, presuming the dividend stays consistent.

Looking at the chart, no data is available for the dividend yield. In that case, let's take this for instance: If a stock is currently trading at $100 per share and the company's annual rate dividend is $5 for every share, the dividend yield is 5%. The yield is calculated by dividing the yearly rate dividend by the stock value. In this instance, $5 divided by $100 equals 5%.

PRIMARY EXCHANGE. The most pertinent stock exchange in a particular country is known as the primary exchange. They frequently have a storied history, a collection of primary listings from leading companies, a stockpile of critical foreign directories, a large total market capitalization, and massive trade value. Here, we can see that Netflix Inc. has NASDAQ (National Association of Securities Dealers Automated Quotations) based in New York as their primary exchange.

Note that these words are only some of the basics in the world of the stock market. This article tends to help individuals who do not have any knowledge of reading stock charts. There are many more jargons and definitions to unlock in the stock market world before you might consider yourself an expert in doing so. That said, all experts are once a beginner, and that is how vital this whole article is.

EXTRA TIPS AS ONE WISHES TO CONTINUE UNVEILING POINTS ABOUT STOCK CHARTS

1.       The inconsistencies and far-flung swings on the stock charts are normal. Such inconsistencies symbolizes that there are risks but also probability of little to massive earnings.

2.      Many variations of stock charts are available online, but all serve the same purpose of helping an investor decide on venturing and investing in stock markets.

3.      Aside from Google Finance, one could also use TradingView, TD Ameritrade, StockCharts.com, Yahoo Finance, and others to read stock charts. These are all for free.

4.       What looks to be a significant increase or decrease may not be as it is. Observe the y-axis; obviously it depends on the stock, the difference in price can vary from some few cents to some few dollars only.

5.      Some charts are only projected for a single day, while some are projected to sum up a whole week, a whole month, a whole year, and so on. That said, if you are to invest for a desired period of time, it is vital that you choose the corresponding chart that projects your time horizon.

Conclusion

In this contemporary world, investing became much more accessible to everyone. Even with a small amount, one could already buy a certain portion of shares in the market. Thus, even at a very young age, one could already be acquainted with the world of finance. One way of deepening one's knowledge of which is through reading the stock charts. That, the way on how to read them is no longer a mystery and as tricky as our first impression. In fact, it is straightforward and easy to learn. There is no more anxiety about why you cannot read a stock chart, which makes it hard to invest. After all, stock charts are there for us to assess the risk we are setting foot into.