Stock charts and accompanying data may appear complex and may be difficult for new investors to understand. The good news is that, with a little help, these charts, and the information they contain, can be helpful during your research process to more easily identify attractive investment opportunities.
By understanding the basics of how to read a stock chart, you’ll be able to analyze new stock ideas more quickly and choose which investments are worth digging deeper into.
These are the basics of reading stock charts for beginners.
how to read a stock chart
Stock charts may vary depending on the platform you use to view them. Several financial websites offer them for free, but you can also find stock charts through your online stockbroker.
The following example graph comes from google finance:
Looking at a stock chart is one of the easiest ways to get an idea of how the stock price has performed over a period of time. With price per share on the y-axis and time on the x-axis, you can quickly see where the stock has been trading. the top of the chart allows you to select different time periods to evaluate.
the big number in the upper left is the current price per share ($998.50). below that, you can see how the stock has changed over the time period you have selected. You can see that Tesla has increased by $284.78, or nearly 40 percent, over the last year.
an interesting feature of google financial charts is that the line on the chart turns green or red depending on the performance of the stock during the time period you are looking at. In the example above, Tesla shares have risen over the previous 12 months, so the chart is green.
Looking at the long-term price chart is likely to give you a better idea of how the underlying trade has performed. Stock prices can do almost anything in the short term. but over time, they tend to reflect the performance of the underlying business.
stock chart data basics to know
There is usually data that accompanies any stock chart you come across. Here are definitions of the most common trading terms you’ll come across.
- Open: This amount refers to where the share price was opened for trading on that given day.
- High/Low: these numbers are the highest and lowest prices at which the stock traded on that day.
- market capitalization: this number refers to market capitalization of the company, or the value of all outstanding shares of the company. share. you can think of it as what it would cost to buy the entire company at the current price.
- p/e ratio: This number is a valuation ratio and looks at where the price of Stock is traded relative to the annual earnings of the underlying company. The p/e ratio is one of the most popular ratios in investment analysis and helps investors determine if a stock is valued appropriately.
- dividend yield: this number It is calculated by taking the annual dividend rate per share and dividing by the current share price. Dividends are a way for companies to share profits with shareholders.
- 52-Week High/Low: These are the highest and lowest prices for which have traded the shares in the past year. some investors like to look for undervalued stocks on lists of companies trading near their 52-week lows.
other stock market conditions that may arise
As mentioned, stock charts can look different depending on where you’re viewing them. here are some other terms you may come across when looking at stock charts and researching companies.
- volume/average volume: volume refers to the number of shares that have traded on a given day. you can also see numbers for average volume, which shows the average daily volume over a period of time, such as 30 days. most large companies trade millions of shares each day.
- eps: This abbreviation stands for earnings per share, which measures how much a company made in earnings per share.
- ex-dividend date: refers to the date on which you must be a shareholder to receive the company’s next dividend payment. if you don’t own the stock on this date, you won’t get the next dividend.
- beta – Some investors use this number to measure the risk of the stock based on its underlying volatility . betas above a value of 1 have been more volatile than the broader market over the specified time period, while a beta below 1 means the stock has been less volatile. not all investors agree that stock price volatility is the best indicator of risk.
- one-year target estimate: this value is an estimate of where what the stock price will be in a year and is generally based on an average of several analyst estimates. This number should not be overly relied upon as many forecasts turn out to be wrong.
Stock charts and their accompanying data can be useful tools when you’re researching a new stock idea. once you get the basics down, you can quickly glance at many different charts and get a lot of key information.
While stock charts often highlight how volatile prices can be, especially over short periods, keep in mind that the key long-term driver of a stock’s price is the earnings and cash flow of the underlying company. Ultimately, a stock can only be as successful as the business itself.
Editorial Disclaimer: All investors are advised to conduct their own independent research on investment strategies before making an investment decision. furthermore, investors are cautioned that past performance of the investment product is not a guarantee of future price appreciation.