Stock Price Chart Lesson

I'm often asked what tool I use for charting, and what should I look for in a stock chart. Well, I'm not going to go into all the different types of charts, because that would take a book. What I will do is describe what I use, and what I look for in a chart.

I do most of my analysis using StockCharts.com, they simply have the best web-based charts on the Internet. The basic service is free, though it could hardly be called basic. I also use charting and trading tools that my broker provides(Fidelity's Active Trader Pro) , so that I can analyze intraday charts. But I'll stick to StockCharts for the vast majority of my stock screening.

Most charting software provides you with a variety of time frames to view prices. I'm primarily a swing trader so, I usually start with 6 months. I'll change between shorter or longer time frames to see if that time span tells me a more complete story about that stock. The chart above shows a 6 month view of AAPL. This is known as a candle stick chart because the elements representing price tend to look like a candle with a wick.

The thick part of the candle is referred to as the body, and the thin lines on the bottom and/or top are called the wick or tail. In general, white candlesticks indicate a positive move in the stock price, and red candlesticks represent a negative move.

Price and Volume
The two most important data points for a technical trader are price and volume. Virtually all your technical analysis will be based on the time series of price and volume data points. Below, you can see how price and volume are overlapping, making it easy for the chartist to associate the two with just a glance. The volume scale is on the left and the price scale on the right.

Note the extremely high volume on January 23 of nearly 125 million shares.

At the top of the chart are important data points showing historical and up to the minute information. The free service on StockCharts has a 15 minute delay, the subscription service provides real-time data.


Oscillators
Directly above and below the price chart you'll find two charts that show waves, that roughly correspond to the fluctuations of the price data. These waves reveal information about the price movement that traders can use as buy and sell signals, or as confirmation for various analysis the trader may make. They are called oscillators because they move up and down in a semi regular way.

There are many types of oscillators that you can overlay on the chart using the various controls. The oscillators you see on this chart, the RSI (Relative Strength Index), and the MACD (Moving Average Convergence Divergence) are the default indicators. You can add or remove oscillators to your desired configuration. I will cover the various uses of oscillators in future posts.

Summary
You should now have a good understanding of price charts. In future posts I will go into more detail of how to use a chart to analyze and place trades. We'll cover support and resistance and how to use these levels to spot potential trading opportunities. If there's anything in particular you would like explained, or written about in more detail, please write it in the comments below.