Beginners Stock Trading: Understanding Stock Chart Types and Using them for Maximum Effectiveness

Learning to read a stock chart is an indispensable skill, in beginners stock trading. A core component of Technical Analysis, a stock chart can tell you a lot about the company you’re researching. I will say this, however: while a chart cannot predict the future price of a stock, it can help you make an educated guess, based on its past movements.

There are many different chart types. It’s important that you understand how to read at least a couple different types of charts in beginners stock trading, as one may be more suitable during different types of research. I’ll cover a few of the most common, and review their pros and cons. Ultimately, I’ll tell you which type I use, and why you should consider making it your primary chart, as well.

The simplest type of chart is the Line Chart. Best compared to the typical "Company Profit" chart, it simply shows a line connecting the dots of the stock’s closing price each day. It’s easy to read and understand for beginners stock trading, but it doesn’t show much for the price action of the stock, during each day. This type of chart is most commonly used to show a stock’s movement at a glance, not for predictive research.

A more complex type of chart is the Bar Chart. Essentially, each day of trading produces another vertical line, or bar, on the chart. The stock’s high and low values for the day determine how tall the bar is, and where it’s positioned on the chart. In addition to each vertical line, a small horizontal line will appear on the left and right side of each bar, showing the opening and closing price of the stock. The opening price will appear on the left, and the closing price will appear on the right. A Bar Chart will also be colored to show whether the price ultimately rose during the day (green) or fell (red).

This type of chart is more useful for stock research, as you’re not only able to see where the stock price closed, but also how much the price moved within each trading day. This is important, because it can show you how much price movement you can expect, on any given day. Despite this extra information, Bar Charts can be difficult to read in beginners stock trading, because the horizontal and vertical lines that compose each bar can be quite small.

Expanding on the bar chart, we move to the Candle Stick Chart. This chart gets its name from the fact that each day’s trading looks like a candle with a wick coming out of each end. The length and position of the wick represents the stock’s high and low values, as the bar chart did. Also, the length and position of the candle body determines the open and closing prices of the stock. Like the bar chart, each day’s candle also appears in green or red, depending on the day’s price action. The real benefit of Candle Stick charts over bar charts is the fact that the colored body is much easier to read, letting you spot the open and close values of the stock more quickly in beginners stock trading.

In beginners stock trading, you need to be able to read charts quickly, and effectively. Knowing price direction is not enough. Being able to see each day’s price action, in addition to direction, is a must! As I’ve mentioned, the Line Chart’s simple construction limits its use to quick or historical review of a stock’s price. The need for a more informative chart brought about the Line Chart, which does include most of the information you need for more detailed research. However, it can be difficult to read due to each bar’s size.

This leads me to my recommendation for your chart research: the Candle Stick. It combines the ability to show complete information for each day’s trading values with a shape that is much simpler and clearer to read in beginners stock trading. Personally, I use it daily and find it indispensable in my trading. Learn the Candle Sticks, and your trading will improve!