How To Read Stock Charts For Beginners

[00:00:00] Speaker 1: Let's learn how to read charts. After this video, you'll be able to read any chart out there that uses candlesticks. There are other types of charts out there, like line charts and bar charts, but candlestick charts are the most useful to us as traders because it gives the information we need, so that's what we'll be focusing on. So here we have a daily chart of Apple, and each little box are known as candlesticks because when they form, well, they kind of look like little candlesticks, don't they? So first, we need to start by knowing how to read a candlestick, and there's five important things a candlestick tells us. Let's start with a very simple example. We'll stick with Apple as our stock, and let's say when the market opens in the morning, Apple's price opens at $2. As it starts trading throughout the day, people are buying and selling the stock until the market closes, and let's say the price closes at $3. So now we have our first two numbers, the opening price and the closing price, and this creates what's known as the body of the candle. Now, in between the time of the open and close, there's two other numbers we need to consider, the highest price it traded up to, and the lowest price it dropped to before closing that day. Because if stocks are being actively traded, the price is going to be fluctuating. So let's say at one point during the day, Apple traded as high as $4 and as low as $1 before closing. And these two prices will be marked with lines sticking outside of the body, or what's known as tails. You may also hear them be called wicks, and these help us see where the price fluctuated to before closing that candle. So if the highest price touched $5 at one point, that tail on top would be much larger, right? But what if the highest price was $3, the same as the closing price? In this case, there would be no tails to show above $3 because it closed at the highest price. The tails are only there to show if it ever fluctuated outside of the closing price. So let's keep it at $4 for now. And the fifth and last thing it tells us is the winner between the buyers and sellers by the color of the body. So the body would be filled green if the price closed higher, signaling the buyer's one, or red if the price closed lower, meaning the seller's one. Because the whole point of utilizing these candles is to help us understand who's in control of the price action. In this case, the price closed higher, so the body would be filled green. So we know the open price is at the bottom of the body, and the closed price is at the top of the body, just by knowing the color. Because if we were to look at the same four numbers, but let's say the body was red, the candle would still look the same, but here it's actually telling us Apple opened at $3 and closed at a lower price of $2. So that same candle is now telling us a different story, isn't it? So just be aware that the open and closed price will sit differently on the body depending on the color. And as this candle closes, the next one will start to form. In this case, this is on a daily time frame because it shows price action for the entire trading day. So as we wake up to a new trading day, a new daily candle will begin to form with new open and closed prices, new high and low prices, and the winner at the end of the day. I like to think of candles as a game of tug of war between the buyers and sellers, always tugging at price. And as one game ends, a new game of tug of war begins, and they are always battling. So as you can imagine, candles will start to form in all shapes and sizes, but there's much more to it than just seeing green or red. So let's look at a few of them and see what they tell us. So here we have some variations of candles we might come across. Let's start with candle A. Here we can see a solid green candle. No tails, meaning the high and low, is the same as the open and closed price. Pretty strong candle. Price opened at a dollar, rallied higher, and closed at a high at $4. That's a pretty impressive move. But remember, think of it as a game of tug of war. In this case, it seems like the sellers didn't even show up to the game, or they didn't put in much of a fight. It was smooth sailing for the buyers. Whereas if you look at candle B, the body is much smaller, but the tail tells us the sellers dragged the price all the way back down to a dollar at one point, but the buyers managed to pull the price all the way back up, and then some to close at a high of $4. That shows me the buyers proved themselves to be worthy in this round of tug of war. So to me, I would consider this candle to have a stronger move up, because the buyers were put through a test. They went through war, fought off the sellers, and came out on top. Now candle C, although the price closed higher than the open, the topping tail tells me something different. In this case, the price rallied up to $4, but the sellers brought in the big guns and pulled the price right back down. So even though we have a green candle showing buyers won, that big topping tail gives me a bearish sentiment because price got rejected hard as it tried to move higher. So a lot of sellers showed up to the fight on the attempt move up. And candle D shows us there was a bit of a battle, but ended up opening and closing at the same price. Meaning there was an even pool between the buyers and sellers. So there's some indecision in this candle. And then candles E, F, and G are the same as the candles we just went over, but flip the other way around. The closing price is at the bottom of the body. So here we opened at $4, sold off and closed at $1. Big selling, but not much of a fight from the buyers. Candle F, here even though the sellers won, we can see the buyers left a huge mark with that bottoming tail. And finally candle E, big fight from the buyers, rallying up to $4 at one point. But sellers stepped in and pulled in strong, closing at the low of this candle. So it's important to not just look at the color of the candle, but to have a deeper understanding of how these candles are forming. And we also have to consider all the candles that came before this and see the big picture. Because if we look back to candle A, if this candle came after a rally higher already, it could be an exhaustion candle. Meaning the last hoorah of buying before ending the move. So that wouldn't be a great time to buy it, would it? So it's important to understand the overall move of these candles. So as you get more comfortable reading one candle, you move up to two and you work your way out from there. To me, learning to read charts is kind of like learning a language. When first starting out, you're learning the alphabets and then you'll start to put words together. And soon enough, you'll be able to read charts like a book. Real quick, if you're finding value in this so far, I just ask you to take a second of your time to like the video. All it takes is one simple click and I would very much appreciate that. So let's take a look at the daily chart of Apple again. We now have a better understanding of what each of these candles mean. On the chart itself, we have price displayed on the right, vertically. And we can see the bubble showing the last price it traded at. And the timeline is at the bottom on the horizontal axis. The dates seem to be squished at the moment, but I can expand out if I want. The bars you see just above the timeline is called the volume bar, which shows the total number of shares traded on each candle. And I'll show you what that looks like in a second. And of course, we have the candles, which forms left to right on the chart. And depending on your platform and settings, you can choose how you want the prices to be displayed for you. So for me, I have it where if I hover over a candle, I have a box that displays all the information I need. So here we got the date, open, high, low and close price. My platform also shows the range of the candle, which is just the difference between the highest and lowest price. And then volume, which comes from the volume bar. So on this day, it shows Apple traded over 115 million shares, not to be confused with dollars, but the number of shares of Apple. Okay, so this is what a basic chart looks like. But let's ask a question, why candlesticks? Why do these charts even exist? Well, these are prices people are actually buying and selling this stock. So if we were to transfer this onto an Excel sheet, it would look something like this. A whole lot of numbers and double the headache. Imagine trying to analyze price action in real time, going through all of these numbers. It'd be impossible, especially for day traders, to do it in a timely manner. You know the saying, a picture is worth a thousand words? Well, in this case, it's a thousand numbers. On a chart, we can immediately see where price is holding, where price is being rejected, and the overall trend, without scrambling through a spreadsheet. So candlesticks makes it much easier for us to analyze price action. And here's where it gets interesting. The timeframes can be changed to whatever you want. So if I want to look at a weekly chart, one candle now has the price data of an entire week of trading. Pretty much combining a week worth of daily candles into a single weekly candle. So it'll have its own open, close, high and low price for that week. And notice how that will have different shapes of candles and project a slightly different picture than the daily chart. Here is a monthly chart. Now each candle is worth one month of trading. So it has an open, close, high, low for that month. We can go up to yearly candles. And we can even get to as small as one minute candles, which is one of the timeframes I use for day trading. And by analyzing charts on multiple timeframes, helps us better anticipate where price will head next. Now this is just a simple how to read a chart video. So we'll get deeper into chart analysis later on. So make sure you're subscribed if you're interested. Because knowing how to read charts is just the first step. Analyzing charts is where the real skill comes in. Also, don't feel so intimidated by any of this. All it takes is some learning and repetition. And it'll all come together one day. So feel free to watch this however many times you need. Get used to looking at charts on different timeframes. I'll link some free sites you can use for stock charts below. And if you have any questions, leave them in the comments section. I'm here to help. And make sure you like and subscribe if you want more content like this one. As always, I appreciate you for being here, and I hope to see you on the next one.