Investing for Organizational Sustainability

wall street survivor • investing 101
7.1 How to Read Stock Charts
This chapter will expose you to the most common charts
available. Their names and meanings are important to your
continuing education and the number of tools you carry in your toolbox in
order to evaluate stocks.
It’ll take some time before you’re comfortable reading and interpreting
many of these charts — this is normal. Don’t be discouraged; even many
experts will tell you that it took them years to develop a high-level ability
to read stock charts. But chart reading is just like anything else; it takes
practice. Spend 15 minutes a day reading charts, and reading about what
other people are seeing, and you’ll be surprised how quickly you start to
see patterns in stock prices.
Reading these charts is an art, not a science. However, becoming a better
chart reader will undoubtedly improve the bottom line of your investment
career.
Let’s lay out the absolute basics of what a stock chart is: the history of a
stock’s price over time. Price is on the vertical or y-axis of the chart, and
time is on the horizontal or x-axis. Thankfully, there are a few variables
that you can usually control in the display of the charts:
• Time Interval / Duration. You can have stock charts that show minutes,
days, weeks, months or even years’ worth of price history.
• Chart Style. You can display the data as a line graph, mountain graph,
Open-High-Low-Close (OHLC), candlesticks, and more.
Logarithmic or Linear Scaling.
• The vertical axis can usually be adjusted
between arithmetic and logarithmic scales. The arithmetic, or linear, scale is
what you would expect, showing the horizontal lines at even intervals; the
logarithmic scale gives you a better visualization of the percent-change in
the stock price. For instance, the distance between a price change of $20
and $40 would be the same distance as $40 to $80 (both of which are 100%
returns).
104