By Jane Smith

As a day trader, learning to read and understand stock charts is crucial to your success. This guide will help you understand the basics of stock charts, including candlesticks, patterns, and indicators.

Understanding Candlesticks

Candlestick charts are a preferred tool of traders because they provide a wealth of information at a glance. Each candlestick represents a specific time period and shows the opening, closing, high, and low prices for that period.

• Bodies: The wide part of the candlestick is called the body. If the body is filled (or colored), the stock closed lower than it opened. If the body is empty (or white), the stock closed higher than it opened.
• Shadows: The thin lines above and below the body represent the high/low range and are called shadows. The top of the upper shadow is the high of the period, while the bottom of the lower shadow is the low.

Recognizing Patterns

Patterns are formations created by the movements of stock prices on a chart and can provide signals for future price movements. Here are a few common patterns:

• Trendlines: These are lines drawn over pivot highs or under pivot lows to show the prevailing direction of price.
• Channels: These are two parallel trendlines with the price of the security moving between them.
• Head and Shoulders: This pattern is one of the most reliable trend reversal patterns.

Using Indicators

Indicators are calculations that are displayed on the chart, based on price or volume, to predict future price movements. Here are a few key indicators:

• Moving Averages (MA): These are used to identify trends and reversals, to set stop losses and entry points.
• Relative Strength Index (RSI): This is a momentum oscillator used to identify overbought or oversold conditions.
• MACD: Moving Average Convergence Divergence. This tool is used to identify potential buy and sell signals.

By understanding these elements of stock charts, you can make more informed decisions about when to buy and sell. Remember, the most successful traders are those who learn continuously.