how to learn graphs : know the basics

Stock charts and the accompanying data can look complicated and can be difficult for new investors to understand. The good news is that with a little help, these charts — and the information they contain — can be useful during your research process to more easily identify attractive investment opportunities.

By understanding the basics of how to read a stock chart, you’ll be able to analyze new equity ideas more quickly and choose which investments are worth digging into further.

Here are some basic principles for reading stock charts for beginners.

Stock charts can vary depending on the platform you’re using to view them. Some financial sites offer it for free, but you can also find stock charts through online stockbrokers.

The chart

Looking at a stock chart is one of the easiest ways to get a sense for how the stock’s price has performed over a certain period of time. With price per share on the y-axis and time on the x-axis, you can quickly see where the stock has been trading. the top side of the chart allows you to select different time periods to view

The big number in the top left is the current price per share ($998.50). Below that, you can see how the stock has changed over the time period you’ve selected. You can see Tesla has increased by $284.78, or nearly 40 percent, over the past year.

One of the great features of the Google Finance chart is that the line of the chart turns green or red based on the stock price performance over the time you are viewing it. In the example above, my Tesla inventory has increased over the past 1 year, so the graph is green.

Looking at the long-term price chart is likely to give you the best sense of how the underlying business has performed. The stock price can be anything in a short time. But over time, they tend to reflect the performance of the underlying business.

Stock chart data basics to know

There is usually data accompanying the stock chart you find.

This is the most common definition of stock market terminology.

• Open: This amount refers to where the stock’s price opened for trading on that given day.
• High/low: These numbers are the highest and lowest prices that the stock traded at on that day.
• Market Capitalization: This number shows the market capitalization of the company, or the value of all the shares issued by the company. You can think of it as what it would cost to buy the entire company at the current price.
• P/E ratio: This number is a rating ratio and looks at where the stock price trades relative to the underlying company’s annual earnings. The price-earnings ratio is one of the most popular in investment analysis and helps investors determine whether a stock is considered right.
• Dividend Yield: This figure is calculated by dividing the annual dividend per share by the current share price. Dividends are a way for businesses to share profits with shareholders.
• 52-week high/low: These are the highest and lowest prices the stock has traded for in the past year. Some investors like to look for undervalued stocks on lists of companies trading near their 52-week lows.

Other stock market terms that may come up

As mentioned, stock charts can be different depending on where you’re viewing them. Here are some other terms that you may come across when you’re looking at stock charts and researching companies.

• Volume/average volume: Volume refers to the number of shares that have been traded in a given day. You may also see numbers for average volume, which shows the average daily volume over some period of time, such as 30 days. Most large companies trade millions of shares each day.
• EPS: This abbreviation stands for earnings per share, which measures how much a company made in profit per share.
• Ex-dividend date: This refers to the date you must be a shareholder by in order to receive the company’s next dividend payment. If you don’t own the stock on this date, you won’t get the next dividend.
• Beta : This numerical value is used by some investors to measure the riskiness of the shares based on their underlying volatility. Betas above a value of 1 have been more volatile than the overall market over the specified time period, while a beta below 1 means the shares have been less volatile. Not all investors agree that share price volatility is the best indicator of risk.
• One-year target estimate: This value is an estimate of where the stock price will be in one year and is typically based on an average of several analyst estimates. This number should not be overly relied upon, as many forecasts turn out to be wrong.

Bottom line

Stock charts and the data that comes with them can be useful tools when you’re researching a new stock idea. Once you get the basics down, you can quickly glance at many different charts and take in a lot of key information.

Though stock charts often highlight how volatile prices can be — especially over short time periods — keep in mind that the key long-term driver of a stock’s price is the underlying company’s earnings and cash flow. A stock can ultimately only be as successful as the business itself.