How to Read Stock Charts, Explained: 7 Parts of a Chart

Intro

In twenty twenty-five, shares worth about $150 trillion traded worldwide. How to read stock charts, explained: seven parts of a chart, what each shows, how to read it, and its limit. Number six shows how a price can halve in one step while each owner's value stays the same. Every part comes from official pages and official data, linked in the description.

Henry only points at what they show. Number one: the two axes, time along the bottom and price up the side.

1. The two axes: time and price

An official statistics guide says a line chart compares two variables, one on each axis. The horizontal axis often measures units of time, and the vertical axis usually shows a quantity, like dollars. On a stock chart, that quantity is the market price: the amount you pay to buy one share. How it works: a regulator's glossary says the market price can change from day to day, or even minute to minute.

So each step along the time axis is one period: a minute, a day, or a week. Exchanges publish their own trading hours and holiday schedules, another regulator's glossary notes. The first step, from the statistics guide: pay attention to the scale before reading the line. In its example, a narrow scale exaggerated a small decline, while a scale from zero showed how small it was.

Some charts also offer a log scale, where equal distances stand for equal percentage changes. An example: a rise from ten to $20 and one from fifty to $100 are both doublings. On a log scale they look equally tall; on a plain scale, the second looks five times taller. What it takes: a glance at the dates along the bottom and the price range up the side.

Its limit: the guide warns that graphs can give a distorted image of the data. Trading hours, holidays, and currencies differ from place to place, so check where a chart's prices come from. Quick check for number one: the time period, the scale, and the currency on the price axis. Subscribe, because next we break down the four prices inside every bar and every candle.

Number two draws those prices on the grid, as one line or as a row of candles.

2. The price marks: line, bar, and candle

Number two: the price marks, drawn as one line, or as a row of bars or candles. A regulator's glossary says historical data gives the opening and closing price for each day of trading. It adds the daily high and low price, along with trading volume. The closing price generally refers to the last price at which a stock trades in a regular session.

How it works: a simple line chart joins one price per period, such as each day's close. The statistics guide says a line chart draws a continuous line between all the points on a grid. A bar or a candle shows all four prices of one period in a single mark. The candle's thick body runs from the open to the close, and thin lines reach the high and the low.

Many charts color the body one way when the close is above the open, and another way below. The first step, from that glossary: find the four prices for one day, the open, high, low, and close. An example: the share opens at $10, rises to $12, dips to $9, and closes at $11. Its candle has a body from ten to eleven, with thin lines up to twelve and down to nine.

What it takes: knowing which period each mark covers, a day, a week, or even a minute. Its limit: the regulator's page notes that closing prices may be reported differently by different data sources. Session times and closing rules differ from place to place, so check which session a candle covers. Quick check for number two: the open, the high, the low, the close, and the period each mark covers.

Number three moves below the candles, to how many shares changed hands.

3. Volume: how much traded

Number three: volume, the bars along the bottom that show how much traded in each period. A derivatives regulator's glossary defines volume as the number of contracts traded during a specified period of time. For shares, an international development bank measures the value traded: the number of shares times their matching prices. Its data puts the value of shares traded worldwide at about $150 trillion in twenty twenty-five.

That is up from about $106 trillion in twenty twenty-four. How it works: each trade happens when a bid, the price a buyer will pay, meets an offer a seller will accept. Every trade has a buyer and a seller, and that bank's data counts only one side. So 1,000 shares sold by one investor and bought by another count once, as 1,000.

Each volume bar sits under the price mark for the same period, a day or a minute. The first step, from that derivatives glossary: read volume beside price, because charting plots price movements and volume of trading. What it takes: comparing each bar with the bars before it, to see what is usual for that share. Its limit: volume shows how much traded, not who traded or why.

A securities regulator's glossary defines a stock's liquidity as how rapidly shares can be bought or sold without substantially moving the price. It adds that stocks with low liquidity may be difficult to sell when you want to. How volume is counted and reported differs from place to place, so check what a source includes. Quick check for number three: the bars under the price, one per period, compared with their usual size.

Number four steps back to the highest and lowest prices of a whole year.

4. The range: the high and the low

Number four: the range, the distance between the highest and the lowest price over a period. A derivatives regulator's glossary defines range as the difference between the high and low price during a given period. Charts often show it over a chosen period, such as one full year of trading. How it works: the year's high is the highest daily high, and its low is the lowest daily low.

On a chart, that is the space between the highest wick and the lowest wick in the window. Today's price sits somewhere between those two, which shows where it stands within the year. An example: a low of $40, a high of $60, and a price of $50 sits halfway. The first step, from that glossary's wording: fix the period first, because a range only exists for a given period.

A securities regulator's glossary names big moves: a bull market is generally a rise of 20% or more in a broad market index. It adds that a bear market is generally a fall of that size, and both need at least a two-month period. What it takes: the dates of the high and the low, not only their prices. A high set eleven months ago tells a different story from one set last week.

Its limit: a range shows where the price has been, not where it goes next. A securities regulator's page says after-hours trades do not change the regular session's high and low prices. Which trades count toward a high or low differs from place to place, so check the source's notes. Quick check for number four: the period, the high, the low, their dates, and where today's price sits.

Number five smooths all those ups and downs into one calmer line.

5. The moving average

Number five: the moving average, a line that smooths the price by averaging recent periods. A government statistics handbook calls taking a moving average a smoothing process. It says smoothing, properly applied, removes random variation and reveals the underlying trend more clearly. How it works, in the handbook's words: average a small set, advance one period, and drop the first number.

An example: closing prices of ten, eleven, twelve, eleven, and $11 average $11. The next day, the oldest price drops out, the newest one joins, and the average moves along. A derivatives regulator's glossary defines a trend as the general direction in which prices have been moving. Its definition of charting even lists average movements of price among the things charts plot.

The first step, from the handbook: choose the size of the set, how many periods each average uses. A short average follows the price closely; a long one is smoother and slower to turn. What it takes: enough past prices to fill the set, so a long average starts later on the chart. In the handbook's table, the first average appears only at the third number, once the set is full.

Its limit: every point comes only from past prices, so the line trails behind the price. The handbook notes that an average of three periods could sit beside the middle period, not the last. Charts usually draw it at the latest period, which is why it trails behind turns in the price. Trading calendars differ from place to place, so the same number of periods can cover different time spans.

Quick check for number five: the number of periods, the direction of the line, and how far it trails. Number six explains sudden jumps in the line that are not what they seem.

6. Dividends and splits

Number six: dividends and splits, two company events that can move the price line in one step. A regulator's glossary says a stock split increases the number of shares without changing the shareholders' equity. Its example: 100 shares at $100 become 200 shares at $50 after a two-for-one split. It adds that dividends paid per share also fall in proportion after a split.

Another regulator's glossary notes that the total dollar value stays the same while the price per share drops. A reverse split works the other way: in a one-for-ten split, every ten shares become one. How it works for dividends: a dividend is a portion of a company's profit paid to shareholders. With a significant dividend, the regulator's page says, the price may fall by that amount on the ex-dividend date.

Shares bought on the ex-dividend date or after do not get the next dividend; the seller does. The first step, from that page: two dates, the record date and the ex-dividend date. That page says the ex-dividend date is usually the record date, or one business day before if that is not a business day. What it takes: the company's announcement, with the split ratio or the dividend amount and its dates.

Its limit: on a price chart, a split looks like a sudden fall, though the total value held is unchanged. So a sudden gap on a known event date calls for checking the ratio or the dividend first. Dividend dates, taxes on dividends, and split rules differ from place to place, so check where you live. Quick check for number six: the split ratio, the ex-dividend date, and the total value held.

Number seven covers everything a chart leaves out.

7. What a chart cannot tell

Number seven: what a chart cannot tell, such as why a price moved and where it goes next. A derivatives regulator's glossary says technical analysis studies patterns of price change and changes in volume. It adds that it does this without regard to underlying fundamental market factors. It defines fundamental analysis as the study of the basic, underlying factors that affect supply and demand.

The same glossary describes a theory in which past prices are not a reliable indicator of future prices. A securities regulator requires funds to tell investors that past performance does not necessarily predict future results. How it works: its stocks page says prices can be affected by factors inside the company, like a faulty product. Or by events the company has no control over, such as political or market events.

The page also notes that large company stocks, as a group, have lost money on average about one out of every three years. So even a long rising line can include down years along the way. The first step, from that regulator: the company's own reports, which public companies must file regularly. The annual report includes audited financial statements and a discussion of the company's business results.

The quarterly report compares results with the same periods of the year before. A chart leaves out the company's earnings, cash, and debts, which its financial statements show. What it takes: time to read those reports, because the chart shows only prices and volume. Its limit: no line, average, or range can promise a result, and results vary.

Disclosure rules and investor protections differ from place to place, so check the rules where you live. Quick check for number seven: the company's reports, the reasons behind a move, and no forecast from the line.

Recap

Number one, the axes: start with the time period and the scale. Number two, the candles: start with the open, high, low, and close. Number three, volume: start with each bar beside its price mark. Number four, the range: start with the period, the high, and the low.

Number five, the moving average: start with how many periods it covers. Number six, dividends and splits: start with the ratio and the ex-dividend date. Number seven, the limits: start with the company's annual and quarterly reports. Which part will you check first?

Tell us in the comments. Results vary, rules differ where you live, and this is information only, not financial advice. Next on Wealth Filings, watch seven ways people make extra money, linked on screen. Subscribe so you see the next list first.