How To Read Stock Charts: Price And Volume

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Price and volume are the two most important areas to look at when learning how to read stock charts, whether you're buying or selling. Here's how you can piece together price and volume action to make more informed investing decisions.

Charts are VERY important when you’re investing. And even though they may look a little complicated at first glance, they’re not too different from any chart you saw in grade school.

The basic premise of a stock chart is to plot the prices of a stock in a certain time interval, whether it’s daily, weekly, monthly, or even short intervals intraday — meaning how it traded throughout a single trading day.

((Let’s look at this daily chart from IBD’s MarketSmith service.)) You have your timeframe at the bottom, and the price on the side. And looking closer at the price area for the daily chart, the top of each bar indicates the highest price the stock traded that day, while the bottom of the bar indicates the lowest price the stock traded that day.

The horizontal line is the closing price, or the last price the stock traded at the end of the trading day. If you’re looking at the chart during a trading day, it’s the current price.

A blue bar represents a price gain from the day before, while a red bar represents a price loss from the day before.

Down at the bottom we can see the volume, or number of shares traded that day. And the color of the bar corresponds to the color of the price bar for that day -- in other words, was the price up or down that day.

Volume is very important because it shows how much buying or selling demand is there for a stock. It’s key to follow the “big money” when you’re investing.

Heavy volume when a stock is rising is a bullish, or positive, sign. It’s good to see strong volume when you’re buying a stock because it means demand is strong. But big volume when a stock is falling is a bearish, or negative, sign — and may be reason enough to sell your position.

Price and volume are the two most important areas to look at on a stock chart, whether you’re buying or selling. If you see a stock finish the trading session at the top of its range for that day in heavy volume, that’s a sign of strength. And if a stock falls but closes well off of the low and the decline comes in light volume, that could indicate supporting action.

Learning how to invest in stocks is an important first step to building wealth. But where do you start? How do you buy stocks? How do you know when to sell stocks? Do you really need to know how to read stock charts? You'll find the answers to all those questions as we continue to add new How To Invest videos to this page.

How To Start Investing In Stocks:

Before you start investing in stocks, it's important to learn how the stock market works and understand some basic rules about how to buy stocks and when to sell stocks. At Investor's Business Daily, you'll find a time-tested investing strategy known as the CAN SLIM Investing System.

Developed from our unique study of every market cycle since the 1880s, the CAN SLIM system identifies the seven common traits of winning stocks. And the videos below will show you how to apply various aspects of the CAN SLIM strategy.

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