How To Read Graphs For Beginners

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How To Read Graphs For Beginners

Today I will show you how easy it is to read candle graphs, even though it may seem complicated.

What are candle graphs?

Surely we all know what a line graph looks like. It’s just a simple line that goes up and down depending on the price movements. Candle graph looks differently, but it shows us the same thing, and even more. In addition to opening and closing price each time period, the candle graph shows us also the fluctuation of the price, meaning how much the price has risen or fell during the specified time period (called a timeframe). If you do not know what I am talking about, read on!

Candle graphs have become the most preferred choice among all modern day traders.

For each graph, we can choose so called timeframe, which is just an option of how large period of time one candle represents. The most common choices for binary options traders are 1 minute, 5 minutes, 15 minutes and 1 hour timeframes. When trading binary options we will probably use mostly the first three. Other than that, people also use 4 hour, 1 day, 1 week and a 1 month timeframes. That’s not something you want to do when trading binary options, though.

Thus, if we are using the M5 (5 minute timeframe) and see 20 candles on the graph, each one representing 5 minutes, we can see all the price movements in the last 100 minutes.

How to read candle graphs?

Candles are divided into two types – BULLISH (rising) and BEARISH (falling). Therefore if we see a bullish candle, the price is
rising / increases and vice versa. The size of the candle shows us where the price started and where it evolved.

Each candle has two wicks. Wicks represent the fluctuation of price, meaning how high or low in the given timeframe the price has gotten, but did not stay there. The wicks are represented by a line, where as the candle body itself looks like a rectangle.

Graph of price development using an M5 timeframe.

  • A – Rate, where the price started
  • B– During the course of 5 minutes the rate has gotten this low
  • C– And also this high
  • D– After 15 minutes the rate was this

I hope I have explained everything simply, because it really is simple, but novice traders often seem to misunderstand. However, if you have any questions, do not hesitate to write me a comment below the article.

Author

More about the author Step

I’ve wanted to build a business of some kind and earn money since I was in middle school. I wasn’t very successful though until my senior year in highschool, when I finally started to think about doing online business. Nowadays I profitably trade binary options full-time and thus gladly share my experiences with you. More posts by this author

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18 Responses to “How To Read Graphs For Beginners”

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Reference ID: #bda7f8a0-74eb-11ea-9058-d91a8f053a10

How to Read Graphs

Updated: December 9, 2020 | References

Line graphs and bar graphs are both visual ways of representing two or more data sets and their interrelation. In other words, graphs are pictures that show you how one thing changes in relation to another. Learning to read graphs properly is a matter of interpreting which pieces of information go together.

Learn How to Read Stock Charts for Beginners

Learn how to read stock charts for beginners in our video.

How to Read Stock Charts for Beginners

  • Let’s talk about how to read stock charts for beginners. Understanding how to read trading charts is the first step to successful trading. It isn’t the most fun aspect of trading, but it is incredibly important. Reading a stock chart helps you to find trend lines, support and resistance and patterns. Once you learn how to do all that then you are well on your way to success.

​Above: Here is a chart of $GE from one of our favorite web charting sites, stockcharts.com. If the above chart looks greek to you, don’t worry. You’ll find everything you need to help you learn the stock market in our stock market courses section.

​Learning how to read stock charts for beginners takes practice. Candlestick charts are my favorite stock charts. Candlesticks have three components.

They have an upper wick, lower wick and the body. The body of the candle is either red or green. If it’s red it tells you that the price at the close of the day is lower than the days open and it is a bearish signal.

1. Candlesticks

If the candle is green, it tells you that the price went up throughout the day and it closed higher than it opened. That is a bullish signal. The wicks indicate price action from the day.

​Above: Here is a quick example of a candlestick pattern that we drew up for our Instagram – note that I am a terrible artist. Anyway, take a look at the red candle after the green candle showing price opened lower and closed lower than the previous day. Candles can be bearish but so can chart patterns

Learning how to read stock charts helps you to predict stock trends. You can find the trend by drawing trend lines. Trend lines connect the prices together to show a direction for the stock.

If the trend line is going up, the stock is bullish. If the trend line is going down, the stock is bearish. When the trend is sideways, the price action is in an indecision. Have you ever heard the saying, “The trend is your friend”?

Learning how to identify the trend for any stock you want to get into just might be the most important part of reading stock charts.

Make sure to watch my video teaching you how to draw trend lines in ThinkorSwim. It’s a really helpful guide for those that what to know how to read stock charts for beginners.

2. Support & Resistance: How to Read Stock Charts for Beginners

Another thing you need to learn in how to read stock charts for beginners is how to spot support and resistance. I can’t stress that enough!

Support levels are where a price tends to fall multiple times without breaking. Price will bounce off the level instead of breaking through it. It has found support. Resistance levels are when a price goes up multiple times without breaking.

You always want to buy at support and sell at resistance. If you see a stock that is moving up, you always want to make sure it breaks resistance and holds before entering. Buying a stock at resistance can cause you to lose money right away.

​Above: Check out the support and resistance channel on $AAPL – sometimes they are very easy to draw, as in this case. I always extend the trend lines into the future so I can see future support and resistance levels.

3. Patterns: How to Read Stock Charts

Another important part of learning how to read stock charts for beginners is reading stock patterns. The stock chart begins to form different patterns. Those patterns signal bullish or bearish moves.

For example, a gap pattern happens when the opening price of the stock opens higher or lower than the previous days close. An example of a gap up is Amazon. Back in October it closed around $970.

The next day it opened at $1057. Tesla gapped down in the beginning of November. There are many different patterns you can learn.

Above: $AMZN is shown with a gap up pattern, and opening much higher than the previous days close. This was followed by a massive bull run riding the 9 EMA to where we see it today.

4. How to Read Trading Charts

There are different time frames you can use on how to read stock charts. I use the 1 minute, the 5 minute and the daily chart when I am looking at a stock. I use the 1 minute chart for find my entries and exits. This is especially helpful when trading penny stocks.

The 5 minute chart I use to find patterns when I’m in a stock or considering getting in. The 1 minute chart moves pretty quickly and sometimes I find that I panic sell or buy when I look solely at the 1 minute chart. The 5 minute charts slows things down.

The patterns are easier to see and it’s a pretty good indicator on whether or not the stock will continue to climb. The daily chart is really important for seeing the patterns. If you see a bullish pattern on the daily chart then you know that the price action of the chart is going to go up. The same goes for a bearish pattern.

Other indicators as such moving averages, RSI and MACD can be added to the chart as additional tools. The moving average lines help with support and resistance.

The RSI is going to show you if a stock is overbought or oversold. The MACD shows the trend. Take our swing trading course to learn more about technical analysis.

The indicators and patterns help with day trading and swing trading. That is why reading a stock chart is so important. It is your tool. Learn how to use it.

5. Study

When learning how to read stock charts for beginners, it’s important not to let your emotions take over. Charts hold a lot of knowledge and learning to read them will help with keeping your emotions in check. But the stock market is unpredictable at times.

Just because the charts show the patterns and the perfect set ups does not mean that it is going to go the way you’ve hoped. Sometimes it takes longer than you anticipated.

News affects a stock differently than what you thought. Things happen but if you can control your emotions and read the charts, you’ll be successful.

Learning how to read trading charts takes practice. Technical analysis basics are key. Especially when you are beginning. But remember practice makes perfect. The gurus were beginners once too.

If you learn how to spot the trend (the trend is your friend), support and resistance (buy at support sell at resistance) and spot the patterns you’ll be well on your way to successful trading.

If you’d like to learn more about how options trading then make sure to check out our trading options for a living post.

6. It Takes Effort

Anything worth doing takes practice and effort and learning how to read trading charts is no exception. If you’d like to learn more about trading be sure to take our courses on our website and join our community, trade room, and subscribe to our watch lists and watch list videos showing you how we find support and resistance levels to find stocks to trade.

How to Interpret Function Graphs

You’re going to see dozens and dozens of functions in your study of calculus, and the graphs of those functions can visually express such things as inflation, population growth, and radioactive decay. Below are some of the most common types of functions:

Parabolic and absolute value functions: In this figure, both functions are symmetric with respect to the y-axis. In other words, the left and right sides of each graph are mirror images of each other, which makes them even functions.

A couple oddball functions: Graph these two equations on your graphing calculator:

These two functions illustrate odd symmetry. Odd functions are symmetric with respect to the origin, which means that if you rotate them 180 degrees around the origin, they will land on themselves. A polynomial function like

where all powers of x are odd, is one type of odd function.

Many functions are neither even nor odd — for example:

Note that a function like

is also neither even nor odd because the first term has an odd degree, but the second term, the 12, has an even degree of zero (you can think of it as 12 times x raised to the zero power).

Also note that the even and odd degree rule works only for polynomial functions. For example, y = cos(x) is an even function despite the fact that the power on x is one. (y = sin(x) happens to be an odd function).

Exponential functions: An exponential function is one with a power that contains a variable, such as:

Take a look at the following figure.

Both functions go through the point (0, 1), as do all exponential functions of the form

When b is greater than 1, you have exponential growth. All such functions go up to the right forever, and as they go left toward negative infinity, they crawl along the x-axis, always getting closer, but never touching the axis. You use these and related functions for analyzing things such as investments, inflation, and growing population.

When b is less than 1, you have an exponential decay function. The graphs of such functions are like exponential growth functions in reverse. Exponential decay functions also cross the y-axis at (0, 1), but they go up to the left forever, and crawl along the x-axis to the right. These functions model things that shrink over time, such as the radioactive decay of uranium.

Logarithmic functions: A logarithmic function is simply an exponential function with the x and y axes switched. In other words, the up-and-down direction on an exponential graph corresponds to the right-and-left direction on a logarithmic graph, and the right-and-left direction on an exponential graph corresponds to the up-and-down direction on a logarithmic graph. You can see this relationship in the figure above, which shows, graphed on the same set of axes,

The two functions are mirror images of each other with respect to the line y = x. This makes them inverses of each other.

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