Investing 101: Reading Price Graphs and Candlestick Charts

Reading stock and cryptocurrency price charts is one of the most basic fundamentals of research you can do when looking at what to invest in. Doing this simple task can help you understand a little bit of the history behind a company or asset that you’re looking at investing in. Stock and crypto charts simply show the price of the asset over time. I want to go over some of the basics behind reading price graphs and especially candlestick charts.

The most common type of chart you will see when looking at stock and crypto prices is a line chart. The horizontal axis of line charts represents time and it can be adjusted to show time in minutes, days, months, or years. The vertical axis represents price, generally in US dollars. The points on the chart represent the price of the asset at the end of the selected time frame, for example the prices on stock charts usually show the price at the closing bell or end of the trading day. If you’re looking at an hourly chart, the price shown is the price at the end of the hour. The points are then simply connected with a line which provides an easy way to visualize price changes over time.

Directly underneath these line charts, you will often see bar charts that display the asset’s trading volume. These bar charts represent the total number of shares bought and sold during the specific time intervals. This volume shows you the trading activity going on with the stock or crypto. Green bars generally show more buying was occurring during the time, while red bars mean there was more selling happening.

Like line charts, candlestick charts show the price of an asset over time, but they also show some extra information. Candlestick charts show the high, low, opening, and closing price for the given time intervals. The main part of the candlestick is called the “real body”, and the lines above and below the real body are called the “shadows” or “wicks”. If the open price is higher than the close price, the candlestick is red or filled black. If the close price is higher than the open price, the candlestick is green or shaded white.

Traders often prefer candlestick charts because it shows more of the market sentiment regarding the price of an asset. Traders try to predict the direction a price is going based on different candlestick shapes, especially when the wick is long on either end. This strategy looks for a bullish pinbar, which has a long bottom wick underneath the candlestick and is often thought to indicate the price will go up in the short term. The opposite of that is a bearish pinbar, which has a long top wick above the candlestick and is thought to indicate the price will go down.

I personally like using candlestick charts when trying to determine the ideal time to invest and buy in. The strategies used for reading charts aren’t exact, but they can definitely help. What are your thoughts on strategies for reading charts? What type of chart do you prefer? Leave me a comment and let me know. Follow me on Twitter @vancealm where I’m constantly sharing information and articles about investing and finances.

Photo by Maxim Hopman on Unsplash