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How to Read Stock Charts

Roger Wohlner is a writer and financial advisor with over 20 years of financial services experience. He writes about financial planning for Wealthsimple and for a number of financial advisors. His work has been published in Investopedia, Yahoo! Finance, The Motley Fool, Money.com, US News among other publications. Roger owns his own finance blog called 'The Chicago Financial Planner'. He holds an MBA from Marquette University and a Bachelor’s degree with an emphasis on finance from the University of Wisconsin-Oshkosh.

Stock charts can be a great way to track the price performance of a stock or ETF over time. They can provide a visual image that’s easy to read. These charts can be very basic or highly advanced depending upon your needs and the data involved.

The chart above for Microsoft (ticker MSFT) goes back to late 1989. The stock price is reflected and is adjusted for any splits that occurred over this time period. The splits are shown by the letter “S.” A stock split occurs when a company decides to issue additional shares in an effort to keep their stock price in a range they feel is more affordable for investors.

For example, a 2:1 split is common. This means that for every share owned by an investor, they will receive an additional share from the company. If, for example, the price per share was $100 prior to the 2:1 split, it would drop to $50 upon the split.

You will notice the letter “D” on the chart above. This indicates when quarterly dividends were paid.

The colored lines at the bottom indicate the volume of shares being traded.

Compared to what?

Looking at the trend in the share price of a stock over time can tell you a lot. In the case of Microsoft, long-time shareholders have rewarded, especially over the time period since the market lows following the financial crisis in early 2009.

This chart from Big Charts shows the gains in the stock (the black line) compared to the returns for the S&P 500 index (in gold). While the gains on the index are impressive, the trajectory of the stock price, especially over the past few years, has been extremely impressive, both on its own and when compared to the index.

Different time periods

Most online stock charts can be tailored to a number of time periods ranging from one day to time periods going back 20 years or more. This will depend upon the chart provider, their data base, etc.

If you are using a comparative benchmark like the S&P 500, the amount of comparative data will depend on how far back their data on the benchmark goes as well.

Other data

Many stock charts also offer other data, both on the actual chart or listed next to the chart.

Moving average

Many investors who study stock charts use the moving average of the stock’s price as an indicator of where the price might be heading. Two popular moving average lengths are the 200-day moving average and the 50-day moving average.

In both cases if the trend on the stock’s price is above the moving average line this is considered to be a good trend indicator. If it dips below the moving average trend line, this is considered to be a negative indicator. Some investors might use this information along with other data about the stock to help determine if the current stock price represents a “buy” or a “sell” sign.

Various indicators and metrics

You’ll notice in this screen shot of the chart for Microsoft from the Yahoo Finance site that a number of metrics are listed. While these are not shown graphically, they are nonetheless important.

Here is an explanation of some the metrics pictured here:

Previous close indicates the closing price of the stock at the end of the most recent trading day.

Open indicates the price at the opening of the current trading day. Often this price will be relatively close the previous close price, but not always. A lot can happen between the market close at 4pm Eastern time and when the market opens on the next trading day at 9am Eastern time. We saw some of this during the financial crisis of 2008-09. Overnight news about a company, good or bad, can cause a major change in the stock price versus the prior day’s close.

Bid and ask prices represent the supply and demand for the company’s shares. Bid represents the highest price an investor is willing to pay for the stock. The stock market is basically an auction market, though a much more automated one then when the stock market first commenced. The ask price is the lowest price at which a shareholder is willing to sell their shares. For a widely traded stock like Microsoft, the difference between these two prices, known as the spread, is generally fairly narrow. This is not always the case with stocks that are more thinly traded.

Day’s range shows the range of trades for the stock during the trading day.

52-week range shows the trading range of the stock over the past year. In the case of Microsoft, the range of $93.96 to $141.68 is a differential of over 50% for the high to the low end of this range. This is certainly a wide range, but statistics like this should be looked at in the context of the stock market as a whole, and in the context of how stocks in the same industry have performed over the same period of time.

Market cap is the total market capitalization of the stock. This represents the total number of outstanding shares times the share price. Microsoft is one of the largest stocks in terms of market capitalization. In order to gain some perspective on this number, it’s helpful to look at the market benchmark for the stock you are tracking, for example the S&P 500 or the Russell 2000 (for smaller cap stocks).

Beta is an indicator of how the stock will move relative to the benchmark being used. In this case Microsoft’s beta of 0.97 means the stock will likely increase by 9.7% if the S&P 500 increases by 10% or will decline in value in the same proportion if things move that way. This is only an indicator and this number is built over actual relative price movements over time.

PE Ratio is the ratio of the stock’s price to the latest earnings by the company on a per share basis. TTM refers to trailing twelve months. The PE ratio is a key indicator for many stock analysts and again must be looked in the context of other firms in the same industry and the stock market as a whole.

EPS is earnings per share of the company. This represents the company’s earnings divided by total shares outstanding. This is an indicator that should be looked at over time to see how it is trending.

Forward dividend and yield takes the company’s most recent dividend payment per share, annualizes it and calculates the stock’s yield based on the current stock price. This allows shareholders and others to compare this yield to other stocks and to the market as a whole.

Ex-dividend date is the date after which new shareholders who purchase shares will not receive the dividend for the most recent quarter. The share price may be impacted a bit after this date, and income-oriented investors may take this into consideration when deciding to buy or sell the stock.

1 yr. target estimate is an estimate of the target price for the shares one year from now, in this case by an outside analyst. It is just that: an estimate.

The ratings at the bottom of the chart are also compiled by an outside stock analyst. They are the opinion of that firm and may or may not be accurate. It is best to review the rankings of several analysts before making a buy or sell decision.

The stock charts depicted above are just a few examples of the types of charting tools available to track stocks and ETFs. As you explore the alternatives available you will likely form your own preferences.

Investing with a Robo-Advisor

Investing in individual stocks, or via ETFs or mutual funds is an important part of a diversified portfolio. Many people choose to invest with a robo-advisor because it allows for further diversification. This means if one investment goes sour it does not drag down your entire investment portfolio. A robo-advisor can help you determine what your overall asset allocation should be based upon your situation. You just take a short survey to determine your goals and risk tolerance before a personalized portfolio is built for you.

Last Updated August 26, 2019

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