How to read a stock chart
Understand the essentials and spot what counts
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👋🏼,
Hope you’re having a good week so far!
Whenever I used to look at stock charts I’d stare at the screen for 10 seconds and then close the browser in the hope that I’d be able to understand it one day.
Lines zig-zagging everywhere, acronyms I’d never heard of, and numbers that felt more intimidating than a high school math exam. I remember thinking, Who even understands this stuff?
I started small, learning one piece at a time, and slowly, the chaos turned into something useful. These charts weren’t just random scribbles - they were stories.
They showed me how companies grew (or didn’t), how the market reacted to big news, and even how investor emotions played out over time.
My guide on how to read a stock chart will walk you through the basics of reading a stock chart - as always, no financial jargon, no confusion.
I’ll cover:
What is a stock chart?
The must-know elements of any stock chart
Basic
Advanced
📹 Explainer
What to look out for on a stock chart 🧐
Best (free) stock chart platforms
What is a stock chart?
In simple terms, a stock chart is a graph that shows you the price of a stock over a specific period of time — for example, five years.
A stock chart is like a storybook for a company’s stock.
It shows you how the price has changed over time, the current trading price, historical highs and lows, and even details like dividends and trading volume. It’s all the key info you need in one place to understand what’s going on with that stock.
The must-know elements of any stock chart
Let’s take this in two parts - basics and then the more advanced pieces.
Basics
Let’s take a look at a typical stock chart. For the sake of this post, I’m going to use Apple as an example stock, as displayed on Google Finance.
Open, high, low, and previous close
The open is where a stock starts trading when the market opens for the day. The high and low show the highest and lowest prices the stock hits during those hours. And the previous close? That’s the price the stock closed at the day before.
Market cap
Often labeled as Mkt cap, this stands for market capitalization - a fancy way of saying the total value of a company’s shares. You calculate it by multiplying the number of shares by the current stock price. For example, Apple’s market cap is a mind-blowing $3.4 trillion, making it one of the biggest companies on the planet.
When you’re researching stocks, Mkt cap is also a simple way to compare and contrast values of different companies.
P/E ratio
The P/E ratio, or price-to-earnings ratio, is a popular metric that helps investors evaluate a stock's value. It compares a company's stock price to its earnings per share (EPS). In simple terms, it tells you how much investors are willing to pay for each dollar of a company’s earnings.
For example:
A high P/E ratio might suggest that investors expect strong future growth, but it could also mean the stock is overpriced.
A low P/E ratio might indicate a bargain or signal that the company’s prospects aren’t as strong.
Dividend yield
Shown as Div yield, this tells you how much a company pays back to its shareholders in cash dividends each year, expressed as a percentage of the stock price. Apple’s recent dividend payouts total about 93 cents annually per share, or around 0.5% of its stock price.
52-week high and low
These are exactly what they sound like: the highest and lowest prices the stock has traded at over the past year.
Advanced
If you’re comfortable and confident with the basics, then I’d suggest using something like Yahoo Finance (which is free) or one of the many other tools that provide more granular detail.
I’m going to use Yahoo Finance and again sticking with Apple, to look at more detailed components of a stock chart.
Bid and Ask
The bid is the highest price someone is willing to pay for a stock, and the ask is the lowest price someone is willing to sell it for.
Bid vs Ask Example
Imagine there are 100 people who want to buy Apple stock. Each person has a specific price they’re willing to pay. For example, one person is willing to pay $225.50, another $225.25, another $225.10, and so on.
If you look at all the buyers, the highest price anyone is willing to pay is the bid.
On the flip side, if you look at the sellers, the lowest price anyone is willing to sell for is the ask.
So, for example, if the highest price a buyer is willing to pay is $225.50 (bid), and the lowest price a seller is willing to accept is $226.00 (ask), that’s the bid-ask spread—a 50-cent difference.
Volume, Average Volume, and Day’s Range
Volume shows how many shares have traded that day. Average volume is the usual daily trading volume over time. Day’s range is the highest and lowest price the stock has traded at during that day.
Beta
Beta shows how much a stock’s price moves compared to the market. If a stock has a beta above 1, it’s more volatile (it moves up and down more). If it’s below 1, it’s less volatile. Just keep in mind, past movement doesn’t guarantee future results.
EPS (TTM) and Earnings Date
EPS (TTM) stands for Earnings Per Share (Trailing 12 Months). It’s the company’s total profit over the last 12 months, divided by the number of shares. The earnings date is when the company announces how much money it made in the most recent quarter.
Ex-Dividend Date
To get a dividend, you need to buy the stock before the ex-dividend date. If you buy on or after, you’ll miss the payout.
1-Year Target Estimate 🔮
This is an analyst’s prediction for where the stock price could be in a year. It's just a forecast, so take it with a grain of salt.
How to read a stock chart - 📹 Explainer
I launched a YouTube channel - slightly out of my comfort zone 😬
If you enjoy my newsletter, then you might also like my videos where I’ll explain investing concepts and opportunities in more detail.
P.S. Next video I’ll look less serious, I promise 😅
What to look out for on a stock chart?
Spot the Trendline 📈
You know that line everyone talks about when they say a stock is “going up” or “crashing”?
That’s the trendline.
At first glance, it seems simple, but it can tell you a lot if you dig deeper.
What’s always important to remember: stocks naturally have their ups and downs. The key is not to overreact to big spikes or dramatic drops. Instead, use the trendline to ask better questions: What’s driving this movement?
For example, Apple’s stock skyrocketed between 2009 and 2012. But in 2012-2013, it took a sharp dive, dropping over 40%. What happened? Steve Jobs had stepped down, profit margins were shrinking, and they were struggling to compete in developing markets.
The trendline doesn’t tell the whole story, but it signals when to investigate further.
Think of it as your “something’s up” alert.
Understand Support and Resistance
Support and resistance are like the invisible fences of a stock’s price.
Support: The price a stock rarely falls below.
Resistance: The price it rarely climbs above.
Imagine a bowling alley with bumpers—stock prices bounce between these lines until something major (like a big announcement or market shift) happens.
Here’s an example using Apple’s stock:
Support line: A price where the stock consistently stops falling.
Resistance line: A price where the stock tends to stop climbing.
First up, these lines are open to interpretation, and people will draw them differently depending on their investment goals.
And if you’re holding a stock long-term, you might not worry too much about the small ups and downs and could skip drawing a lot of lines. But if you’re a short-term investor, you’ll likely focus on more of these lines to spot short-term trends.
Here’s a quick breakdown of the trendlines in the example:
Line A: This is a line of support, showing a price the stock likely won’t drop below.
Line B: A line of resistance where the stock price has peaked and isn’t expected to go higher for now.
Line C: Another line of resistance where the stock hits a new peak.
Line D: A line of support where the stock price bottoms out again.
Line E: The price peaks yet again, continuing the pattern.
The key takeaway?
These lines help you see patterns in how the stock price moves, which can guide your buying or selling decisions.
Watch for Dividends and Stock Splits
At the bottom of a stock chart, you’ll see markers for dividends and stock splits.
Dividends: A portion of the company’s profits paid to shareholders. Not all companies do this - it’s more common in stable, mature companies. Apple, for instance, started paying dividends in 2012.
Stock splits: When a company divides its shares into smaller units to make them more affordable for investors. In 2014, Apple did a 7:1 stock split, meaning if you had one share, you’d now have seven.
Stock splits don’t change the company’s overall value, but they can attract more investors, which often boosts the stock price.
Pay Attention to Trading Volume
At the bottom of the chart, those tiny vertical bars show trading volume—how many shares are being bought and sold.
Why does volume matter?
It often spikes when big news hits, good or bad. For instance, during the 2008 financial crisis, Apple’s trading volume surged as the stock price dropped.
Higher volume generally means it’s easier to buy or sell a stock quickly.
However, don’t assume high volume always equals a price change; it’s just one piece of the puzzle.
Best (free) Stock Chart Platforms
Yahoo Finance: simple user-friendly interface, provides real-time data, basic technical analysis, and lots of market coverage.
Google Finance: this is my go-to for quick stock quotes and basic price tracking, also my recommendation for anyone new to stocks
MarketWatch: provides deep dive market insights, detailed technical indicators, and integrates news to keep users informed.
Finviz: Features powerful screening capabilities, including stock screeners and heat maps, along with various technical analysis tools.
If you found this helpful, you might also like my Stock Market Fundamentals Course!
It’s designed to guide you through the core aspects of the stock market and help you invest with confidence. Plus, as a FinBrain Pro member, you’ll also unlock access to my investment opportunity guides, practical investing resources, and more.
Thanks as always for reading! If you enjoyed this, please do hit the ❤️ or share with folks who might find this helpful.
Jason
DISCLAIMER: None of this is financial advice. The Finbrain newsletter is strictly for educational purposes.
This was quite educational and an easy read. Thanks for sharing.
Jason, I'd love to add we should use candlesticks to read stock charts. If you google a stock chart, you get one point per day. It doesn't tell you about what happened to the stock during the day. Candlesticks solve this problem. Sometimes there are clear reversal signs in the candlesticks.