Reading Stock Charts

Stock charts visualize price movements over time. The most common type is the candlestick chart, where each candle shows four data points: open, high, low, and close prices for a specific period. A green (or hollow) candle means the stock closed higher than it opened; a red (or filled) candle means it closed lower.

Support levels are price points where a stock tends to stop falling and bounce back up. They form when buyers consistently step in at a particular price. Resistance levels are the opposite — prices where selling pressure consistently prevents further upward movement. When a stock breaks through resistance, that level often becomes new support.

Trend lines connect a series of higher lows (uptrend) or lower highs (downtrend). A stock trading above its trend line is generally in an uptrend. The steeper the trend line, the stronger the trend — but very steep trends are unsustainable.

Common chart patterns include: Head and Shoulders (reversal pattern showing three peaks, the middle one highest), Double Top/Bottom (two attempts at the same price level), and Triangles (converging trend lines indicating a breakout is coming). These patterns help predict the direction of the next major move.

Volume bars at the bottom of the chart confirm price moves. Rising prices with increasing volume suggest strong conviction. Rising prices with declining volume (divergence) warn that the move may be weakening. Always look at price and volume together for the full picture.