Stock charts aren’t just for equity investors and advanced traders. ETF investors can also use the same charting skills and data for analyzing trends and making investment decisions. Although stock and ETF charts can first appear intimidating, learning the basics can be simple.
By understanding how to read a stock chart and the basic terminology that comes with it, investors can analyze stock or ETF trends to gain ideas worthy of further analysis.
What Is a Stock Chart?
A stock chart is a graphical representation of a stock’s performance over time, such as a day, a week, or several months or years. Stock charts are primarily used by technical traders and other active investors. Traders generally watch for technical patterns from past performance that provide clues about how a stock may perform in the future.
What Are the Types of Stock Charts?
The most common types of stock charts used by investors are line charts, bar charts and candlestick charts. Each stock chart type will illustrate the past performance of a stock or ETF over time, but it may also include volume, which measures the number of shares traded during a particular time period.
The types of stock charts include:
- Line charts
- Bar charts
- Candlestick charts
A line chart is the most common stock or ETF chart that investors see on various investment websites and discount broker websites. A line stock chart typically displays the stock price plotted across a graph that includes a y-axis that runs vertically and an x-axis that runs horizontally with a continuous line connecting the plotted data.
Due to their simplicity, line charts are good for beginners and for investors who want a basic representation of a stock’s or ETF’s performance over time.
A bar chart is a graphical display of a stock’s price movements, which are represented by price bars showing the highest and lowest price reached during a given period. Each bar has a vertical line that represents the high and low prices for the period. Horizontal lines represent the opening and closing prices.
Bar charts are a bit more advanced than line charts because in addition to price movement, bar charts show volatility. For example, the longer the bar, the greater the difference between the opening and closing prices. High volatility implies high risk.
A candlestick chart in finance is a chart that displays the price movements of stocks using bars that look like candlesticks. The most popular charts used by traders and advanced investors, candlestick charts show the opening, high, low and closing price movements per specified time period to generate a candlestick, which is plotted on the chart.
The candlesticks are made up of three parts: the body and the upper and lower tails. The body is made up of the opening and closing price during the time period and may be colored green or red. A green candle indicates the closing price was higher than the opening price, and a red candle indicates the closing price was lower than the opening price.
The tails, also known as wicks or shadows, are thin lines that extend from the upper and lower parts of the candle representing the highest and lowest prices for the period.
In addition to price movements, candle charts may also show a trendline and the volume of a stock. For example, in the image below, the candles and wicks are shown with the trendline, and the volume is displayed at the bottom of the chart:
Stock Chart Terms to Know
When looking at a stock or ETF chart, it’s helpful to know the main terms associated with the chart, as well as terms that may be helpful for interpreting the chart’s data.
Stock chart terms to know include:
- Open high, close and previous close: These are terms associated with stock charts that display daily stock or ETF price data. The open is the price at which a stock or ETF trades during regular market hours, while high and low represent the highest and lowest stock price points reached during the trading day, respectively. The previous close is the closing price of the previous trading day.
- Volume: This represents the number of shares traded in a particular stock, ETF or other investment security over a specific period. High volume on an up day can indicate positive momentum and a high volume on a down day can indicate downward momentum. Low volume in any direction generally means a low conviction on the part of investors, which makes the move less significant than higher volumes.
- Trendline: These are lines that are drawn on stock charts that extend into the future to give the trader or investor an idea of which direction a stock or ETF might move.
- Support and resistance: Support represents a price point where a downtrend is expected to temporarily pause, and resistance represents a point where an uptrend is expected to pause. A primary technical takeaway is that when a resistance or support level is broken, its role is reversed.
What Is the SPY Chart?
The SPY chart is a stock chart that shows a graphical representation of the historical price movements of the SPDR S&P 500 ETF Trust (SPY). Since the SPY ETF is often used as a proxy for the U.S. stock market, a SPY chart can be a convenient means of reviewing past performance of the stock market, as well as potential future movements.
Some investors choose to use the SPY chart to help implement a market timing strategy where the investor buys, sells, or shorts SPY based on anticipated price movements over a few days, weeks, or months.
A stock or ETF chart may be used by an investor for a range of purposes, whether it’s simply to see a graphical representation of price movements over time, or as a tool for technical analysis within an active investment strategy. Stock charts are easily accessible on most investment websites, and the main types of charts used by investors are line charts, bar charts and candlestick charts.