How to Read Stock Charts – Step-by-Step Instructions (2024)

May 14, 2019

How to Read Stock Charts – Step-by-Step Instructions (1)

How to Read Stock Charts – Step-by-Step Instructions (2)

Written by:
Al Hill

In this article, I will detail how to read stock charts.

Unlike other articles which show you everything at once and then detail the components. I will buildup the chart like layers of a cake. As we talk through each layer, it will help you understand the significance of each item.

X and Y-Axis

A stock chart is composed of an x and y-axis.

So for all of you people that feel math in school is a waste of time – think again.

How to Read Stock Charts – Step-by-Step Instructions (3)

X-Axis and Y-Axis

The most recent time is to the far right.

For price, the highest price is in the upper right-hand corner, with the lowest price near the x-axis.

Chart Styles

The next layer we need to add is the type of chart. Now each trading platform will provide you with a host of charting styles.

These range from line charts, which you can see in the above image. Another is the point and figure which was huge in the early part of the 20th century.

Below is an image of the chart types we have in Tradingsim.

How to Read Stock Charts – Step-by-Step Instructions (4)

Chart Styles

With so many chart options which one should you choose?


Since the 90s the most popular charting style in the west is candlestick charts.

One of the first things you will notice is the chart has red and green candles. A green candle represents a positive close on the period. A red candle represents a negative close.


Now that you have the chart loaded up, you need to decide what timeframe you plan on trading?

Again, you move many options to choose from.

How to Read Stock Charts – Step-by-Step Instructions (6)

Many Time Intervals

As you see you can see there are over 11-time interval options and we are adding new ones every couple of months.

So, which one do you use?

Here are some general guidelines.

  • 1 – 3 minutes for extremely volatile stocks
  • 5 – minute for moderate volatility
  • 10 – 15 minute for low volatility
  • 1 – 4 hours and daily swing trading
  • Weekly long-term investing

Once you get more advanced you can have multiple timeframes running at once in order to get a holistic picture of the trading action.

To keep this article focused, I am going to use the 5-minute chart.

Look Back Period

The next thing you need to tackle is how far to look back on your chart. The more data you bring in the greater the amount of information you will need to factor.

Meaning if you are looking at two days of data, you will see a different picture than if you zoom out two weeks.

This is because you could be going through a bullish trend over the short-term but if you zoom out, you will see that it’s in the context of a bear market.

How to Read Stock Charts – Step-by-Step Instructions (7)

Bullish Chart?

Is the above chart a bullish setup?

Now let’s look at the same chart zoomed out a bit.

How to Read Stock Charts – Step-by-Step Instructions (8)

Not That Bullish

When you are just starting out, you will want to zoom in and out on the chart to get a better picture of what’s going on.

At this point, we should take a quick pause to recap our progress. You now understand the types of charts, intervals and the need to zoom in and out.

Support and Resistance Levels

The other key thing about charts is identifying support and resistance levels. The simplest way to perform this action is to look for recent swing highs and swing lows.

If price respects these boundaries then you have clear levels for you to pay attention to.

Now, each stock is unique, so you have to perform this process for each stock you assess.

How to Read Stock Charts – Step-by-Step Instructions (9)

Support and Resistance Levels

Do you see now how random chaos starts to shape form once you identify support and resistance levels?


Trendlines is the evolution of support and resistance levels. Essentially instead of horizontal or sideways action like the previous example, trendlines allow you to encapsulate an up or down move in the market.

Why is this important? If you are going long, you will want to buy the dips or the tests of the trendline. If you are going short, you will want to short the tests of the trendline.

Up Trendline

How to Read Stock Charts – Step-by-Step Instructions (10)

Up Trendline

Down Trendline

How to Read Stock Charts – Step-by-Step Instructions (11)

Downtrend Line

Technical Indicators

At this point, the chart is pretty simple to read. You have price action displayed by the candlesticks and then you apply support, resistance and trendline drawings to identify trading opportunities.

Now is where things get a bit more custom.

Technical indicators are what traders use to forecast price movement.

These indicators can be chart overlays or off-chart indicators.

Chart Overlays

Chart overlays include items like moving averages and Bollinger Bands which are displayed on the chart.

How to Read Stock Charts – Step-by-Step Instructions (12)

Overlay Indicators

Some of the most popular overlay indicators are moving averages and the VWAP.

Off-Chart Indicators

The off-chart indicators are tools that forecast when a stock is oversold or overbought. This allows traders to open positions in hopes of capitalizing on these price inefficiencies.

For example, if a stock is oversold while trading in a range, this could be an awesome opportunity to open a long position.

How to Read Stock Charts – Step-by-Step Instructions (13)

Off-Chart Indicators

Keeping Data

What you don’t see on the chart, but is essential to properly understand stocks is chart patterns.

There are far too many to cover here, but you need to master patterns. Out of everything I have seen in the market, patterns are repeatable and consistent.

You need to track every pattern that interests you. This can range from double bottoms to opening range breakouts.

Apply your desired indicators to the charts in order to gain insights into how stocks will perform under certain circ*mstances.

You will want to track the average price move and the percentage of times the pattern works.

Over time you will begin to see data patterns which will help give you an edge.

Again this sort of analysis is still related to the chart, but it will require you to do some homework on your end.

How Can Tradingsim Help?

You can use Tradingsim to configure your chart to begin the process of reading stock charts. Reading the charts is a skill that you can develop over time, but it is not something you can master after watching a trading tutorial video or reading a book.

Tags: Basics of Stock Trading

I'm a seasoned financial analyst and trading enthusiast with extensive experience in deciphering stock charts and market trends. My expertise is grounded in years of hands-on experience navigating the intricacies of the financial markets. Now, let's delve into the concepts outlined in the article from May 14, 2019, on how to read stock charts by Al Hill.

X and Y-Axis: A stock chart comprises an x and y-axis, where the most recent time is to the far right. The x-axis represents time, and the y-axis represents the price. The highest price is in the upper right-hand corner, and the lowest price is near the x-axis.

Chart Styles: The article introduces various chart styles, ranging from line charts to point and figure charts. Each trading platform offers different charting styles, and the choice depends on personal preferences and trading strategies.

Candlestick Charts: Candlestick charts, popular since the 90s, are widely used in the west. These charts represent positive and negative closes through green and red candles, respectively.

Timeframe: Choosing the right timeframe is crucial. The article suggests different time intervals based on stock volatility, from 1-3 minutes for highly volatile stocks to weekly for long-term investing.

Look Back Period: The look-back period on a chart influences the information available. A longer look-back period provides a broader perspective, helping to identify trends in different market conditions.

Support and Resistance Levels: Identifying support and resistance levels involves recognizing recent swing highs and lows. These levels help traders determine potential entry and exit points.

Trendlines: Trendlines evolve from support and resistance levels, capturing the upward or downward moves in the market. Traders use trendlines to identify opportunities to buy or sell.

Technical Indicators: Technical indicators, such as moving averages and Bollinger Bands, are employed to forecast price movements. These indicators can be chart overlays or off-chart tools forecasting overbought or oversold conditions.

Chart Patterns: Chart patterns, like double bottoms and opening range breakouts, are repeatable and consistent. Traders track these patterns, analyzing their average price moves and success percentages over time.

In conclusion, reading stock charts is an evolving skill that requires continuous practice and analysis. Utilizing tools like Tradingsim can assist in configuring charts and gaining insights into market behavior. Understanding chart patterns and technical indicators can provide traders with a valuable edge in the dynamic world of stock trading.

How to Read Stock Charts – Step-by-Step Instructions (2024)
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