Everyone wants to master the markets, but investing isn’t just about finding the winning stocks or spotting the right time to sell. There’s more to it. Having a good grasp of the fundamentals is the first step towards success. Chart reading is definitely an invaluable tool you’ll need to navigate in news-driven, volatile markets.

 

Reading a stock chart can be intimidating at first, but don’t stress – AQUMON is here to help! We have highlighted some key points to make reading charts less confusing for you!

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Why use stock charts?

 

A stock chart is a set of information about a particular company’s stock that generally shows information about price changes, current trading prices, historical highs and lows and et cetera. It tells you most information you need about a stock.

 

If investing is an exam, then a stock chart is the required reading. You can’t sit an exam without knowing what’s on the textbook. It’s the same case when it comes to investing: you can’t invest without knowing what’s happening with the stock and the market. 

 

3 basic things to keep in mind when reading a chart:

 

1.     Read the chart from right to left

2.     Pay attention to the trend line

3.     It’s about how the stock reacts to the news, not the news itself

 

What’s in a chart? 3 key factors to look for in a chart

 

1.     Observe the time and price axes 

Every stock chart has two axes: the horizontal axis shows the time period, and the vertical axis shows the price of the stock.

 

2.     Price and Volume

You should look at price and volume together when analysing a stock in order to quantify market sentiment.

 

3.     Look for the trend line 

You can glean a good bit of information by looking at the trend line on the chart. There are different lines for different chart styles. 

 

Moving average lines vs Relative strength lines

 

-       Moving average lines

This line tracks the share price movement over a set of time – it tells you if a stock is being enthusiastically supported or aggressively sold by large investors.

 

-       Relative strength lines

This line compares a stock performance to that of S&P 500, one of the major US benchmarks – this line is a quick way to see if the stock is a leader or a lagger in the market.

 

HLOC bar charts vs Candlestick charts

 

High-low- open-close (HLOC) bar chart tracks a stock’s movement by using its open, high, low and close price. 

 

 

Candlestick charts are similar to HLOC bar charts, but they are a bit more complex. This type of chart also takes the stock’s open, high, low, and close prices to chart its trend; you read the chart by looking at its colour, body, and wicks. 

 

The colour of the stick is a good indicator of whether the market is bullish or bearish during the period. Typically, green boxes indicate periods when the price of the stock closed higher (bullish) and red boxes when the stock closed lower (bearish) than the previous day.

 

The wick of the candlestick shows a stock’s highest and lowest price in the given time period: the top wick is the highest and the bottom wick is the lowest.

 

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Daily chart vs weekly chart: Which one to use?

 

Newer investors often wonder the difference between a daily chart or a weekly chart and which one to use.

 

The short answer to that is both!

 

The daily chart tells you the price and volume action at specific, time-sensitive moments whereas the weekly chart gives you a longer-term perspective and the stock’s underlying trend.

 

So be sure to look at both charts to have a better understanding of the stock before taking any actions. 

 

If you want to skip the hassle, AQUMON’s latest product, SmartStock Portfolios, uses our proprietary PowerFactors ® to make stock picking smarter and simpler for you. There are six new thematic portfolios which highlight different areas for investors to choose from. Start investing and let AQUMON do all the work for you!

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About us

As a leading startup in the FinTech space, AQUMON aims to make sophisticated investment advice cost-effective, transparent and accessible to both institutional and retail markets, via the adoptions of scalable technology platforms and automated investment algorithms.

AQUMON’s parent company Magnum Research Limited is licensed with Type 1, 4 and 9 under the Securities and Futures Commission of Hong Kong. In 2017, AQUMON became the first independent Robo Advisor to be accredited by the SFC.

AQUMON’s major investors include the HKUST, Cyberport, Alibaba Entrepreneurs Fund and the Bank of China International's affiliate.

 

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