How to Read a Stock Market Graph

A stock market graph in a financial newspaper displays price data.

Investing well requires extensive research of your investment options. When planning to invest in the stock market, you should look not only at a stock's present status, but at its historical trading prices as well. To get a historical perspective at a glance, you can consult a stock market graph. The stock market graph contains stock pricing information over a specific length of time. Each graph can show a single stock or stock index, or it may show multiple stocks for comparison. Knowing how to read these graphs gives you a valuable feedback for when you buy or sell stocks .

Instructions

1. Take a look at the horizontal line at the bottom of the graph to determine the period that the graph is displaying. All graphs show a span of time, which visually represents a changing market for those looking for trends or historical market information. The period can be anything from a daily charting of price changes to long-term displays covering multiple years. The graph splits the displayed period into equal time intervals, which can be as small as a single hour or as long as months depending on the total time span. Time runs left to right with the right side of the graph indicating the most current information.

2. Examine the vertical line at the left of the graph for a price range of the presentation. The range covers all prices presented within the graph. Prices run upwards from the base of the graph to higher price points the higher in the graph they go.

3. Locate the key for the graph. The key displays every stock or market index displayed in the graph and includes a method for differentiating between multiple charted items within the graph. Graphs that chart multiple stocks or indexes will typically display each separate item as a different color on the chart to make it easier to pick out individual charted elements. For example, a chart displaying IBM stock price changes over a 90-day period compared with changes in the S&P 500 market index may display IBM prices in blue with the S&P displayed in green.

4. Note the price positions according to each presented time interval. Each interval on the horizontal line will have a price point placed indicating the price of the tracked item at that specific period. Depending on the particular graph, the point may appear as a single dot on the vertical directly above the horizontal point on the time line. These dots are often joined with the dots in adjacent time periods to from a line graph that shows changes in price over time.

5. Read bar charts by examining the vertical bars rising from the base of the graph centered on the time interval up to a specific price point. You can compare the price of the charted item by visually comparing the size of the bars, or by examining the price point that each bar hits on the vertical.

6. Read candlestick charts contained in longer term charts where prices are shown using a small vertical bar centered on the time interval. The bar displays the charted item's price activity during the time period. The bottom of the bar shows the closing price, and the top of the bar the opening price when the bar is shaded, indicating an item that lost value. For an item that gained value, the top shows the closing price and the bottom the opening price with the bar unshaded. Small lines extending from the top and bottom of the bar show the high or low for the charted item during the period.

Tips & Warnings

• Historical price performance of a stock is no actual indicator of future stock performance.

References

• Stock Charts: Chart Analysis
• Stocks Simplified: How To Read Stock Charts

Resources

• The Motley Fool