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If you are new to stock investing and trading, then one of the first things you should learn is how to read the stock market.
So, exactly where do you start when it comes to learning how to read the stock market?
Learning how to read stock quotes and the stock chart should always be the first step.
If you watch any financial news network on TV, you will see real-time stock market data appearing at the bottom of the TV screen.
Generally, due to the limited space and time available, only selected stocks (the most heavily traded stocks) will be shown.
How To Read Stock Quotes
So, what are stock quotes?
Stock quotes are just stock prices displayed together with other stock information on the stocks.
Here’s a list of other information you will see in a stock quote.
#1: Company name
Company name is the name of the company that is listed on the stock exchange and whose shares are trading on the stock exchange.
For example, Apple Inc. is listed on NASDAQ stock exchange.
#2: Ticker Symbol
The ticker symbol (or stock symbol) is just an abbreviation used to uniquely identify the shares of a particular company’s stock on the stock exchange.
For example, the ticker symbol for Apple Inc. is AAPL
So, if you want to buy or sell Apple Inc share, you search for its stock symbol on your broker’s platform to find out its latest buy and sell prices.
#3: Current price
Current price refers to the stock price right now at this exact moment.
As the stock price is constantly moving, you will need to stay up to date with the current price.
The opening price is the price at which a stock is first bought and sold upon the opening of a stock exchange on a trading day.
The bid is the price at which you can sell the shares in the market (i.e. the price at which other stock traders are willing to buy the shares from you)
The ask is the price at which you can buy the shares in the market (i.e. the price at which other stock traders are willing to sell you the shares)
#7: Previous close
The previous close refers to the stock price at which the shares close at the end of the previous trading day.
#8: Day’s range
The day’s range refers to the difference between the highest and the lowest stock price traded during the day.
Volume refers to the number of shares traded for a defined trading period.
If the market has closed, then the volume displayed on the financial news website refers to the total number of shares traded during the day.
When you want to find the stock quote of a particular stock, you can search for it on financial news websites such as Yahoo Finance or CNBC.
Let’s say that you want to search for stock quotes of Apple Inc.
Here’s what you will see on Yahoo Finance.
The stock symbol of Apple Inc is AAPL.
Right below the stock symbol is the stock exchange where the stock is being traded as well as the currency in which it is traded.
Next, you will see the stock price of $452.04 which is the closing price at the end of the trading day.
It was up by $14.54 in dollar terms from yesterday’s closing price.
In terms of percentage, it was up 3.32%.
Okay, there is another share price you see beside it.
This share price of $453.92 is the current share price being traded at 6:52 am in the pre-market hours as indicated by the words “before hours”.
The market is going to open at 9:30 am, but a lot of brokers allow you to trade before the market opens from 4 am to 9:30 am.
And you can see that, in the pre-market hours, the share price is up by $1.88 or 0.42% from the closing price of $452.04.
Now, let’s take a look at all the numbers below the stock price.
The first one is the previous close which is $437.50.
Basically, when you see that the share price of $452.04 was up by $14.54 or 3.32%, it was compared against this previous close $437.50.
Next, you will see the opening price of this stock is $441.99.
Then, you will see the bid and ask as of the market close.
The bid is $451.05 x 2200.
So, what does this mean?
It means that buyers are willing to buy at $451.05 for a total number of 2200 shares.
The ask is $453.00 x 1000.
This means that sellers are willing to sell at $453.00 for a total number of 1000 shares.
Generally, when the bid price volume is much higher than the ask price volume, it means the buying power is very strong and the share price is likely to go up.
Then, you will see the day’s range is $441.19 to $453.10.
This tells you that the lowest share price traded was $441.19 and the highest share price traded was $453.10 during the trading day.
Next, you will see the 52-week range.
This tells you the lowest and highest share price traded over the past 52 weeks.
Lastly, you see the volume is 41,486,205.
This refers to the total number of shares traded on the trading day.
The average volume is the average number of shares traded on any trading day over a specific period of time.
Now, let’s move on to the data that is related to the fundamentals of the underlying company.
#1: Market Cap
Market cap is short for market capitalization which is the total value of all the shares of the underlying company.
This value is always changing, depending on the current share price.
In the case of Apple Inc., the market cap is 1.933 trillion as of today’s writing.
#2: Beta (5 Year Monthly)
Beta refers to the volatility of the stock price.
The higher the beta, the more volatile the stock price is compared to the general stock market.
If you are picking stocks for day trading, you should always go for stocks with higher volatility because high volatility means a big price movement.
It also means that you will have more trading opportunities.
#3: P/E Ratio
The P/E ratio means the price-to-earnings ratio.
Let’s assume Apple Inc is making $10 per share every year.
Are you willing to pay $452.04 for a share, which is equivalent to a P/E ratio of 45.204 (i.e. $452.04/$10)?
On the other hand, let’s assume Apple Inc. is making $100 per share every year.
Are you willing to pay $452.04 for a share, which is equivalent to a P/E ratio of 4.5204 (i.e. $452.04/$100)
Generally, the higher the P/E ratio, the more expensive the stock is and the more overvalued the stock is.
A fair P/E ratio is generally considered to be around 15.
EPS stands for earnings per share.
This is the company’s net profit divided by the total number of shares.
Generally, the higher the earnings per share, the better it is for the shareholders because it means the company is more profitable.
#5: Forward dividend/yield
The forward dividend is the dividend expected to be paid at the next dividend payout date.
Forward dividend yield can be seen as the “interest” you get by investing in the shares of the company.
It’s a percentage of a company’s current stock price that is expected to pay out as dividends to you.
Let’s assume that the company’s stock price is $100 and it expects to pay out $5 a share as dividends.
So, the forward dividend yield is 5% (i.e. $5/$100)
#6: One-year target estimate
This is the estimated price target for the stock in one year’s time by stock analysts.
You should always take this data with a pinch of salt because no one can predict the stock market and individual stock prices with 100% accuracy.
Further Reading: What Is The Best Stock Trading Software?
How To Read A Stock Chart
A stock chart is a stock price chart that shows a stock’s price plotted over a time frame such as 1 day, 1 week, 1 year and 5 years.
Reading stock charts is very important if you want to trade stocks for profits in the short term or use chart analysis to pick stocks for long-term investment.
So, what does a stock chart look like?
Also, how do you read a stock chart?
Most importantly, how do you use a stock chart to help you in stock investing and trading?
First, below is an example of a stock chart.
This chart is the stock chart of Apple Inc. on the trading day of 13th Aug 2020 as you can see from the date on the horizontal axis of the chart.
US stock market opens from 9:30 a.m. to 4 p.m.
However, you can start buying and selling stocks way before 9:30 am in the pre-market hours.
The exact pre-market hours depend on your stock brokers.
Generally, most brokers allow you to trade from 8 am to 9:30 am in the pre-market hours and from 4 pm to 8 pm in the after-market hours while some might offer even longer extended trading hours.
Although it’s good to be able to have extended trading hours, you should understand that there are certain risks associated with trading outside regular market hours:
- Low liquidity (i.e. you might not be able to get your orders filled)
- Larger bid-ask spread (i.e. you might be buying or selling at very unfavorable prices)
- High volatility (i.e. you might see a big swing in the prices)
Now, let’s move on to learning how to read a stock chart.
TradingView is my No.1 choice when it comes to chart software for stock analysis. (By the way, the best part is that it’s FREE to use)
There are many different chart types.
The most common chart type used for stock trading is the Candlestick chart.
You can probably tell by their names that Candlestick charts are made up of candlesticks.
Basically, a candlestick chart is used to describe price movements of the stock over a certain time frame such as 1 minute, 5 minutes, 15 minutes, 1 hour, 4 hours or daily.
Typically, you use a lower time frame such as 5 minutes or 15 minutes for day trading or swing trading while you use a higher time frame such as daily or weekly for long term stock investing.
Let’s say that you want to look at the 5 minute time frame.
Each “candlestick” show you the open, close, high and low of the stock price during this 5 minute time frame.
So, how it shows on the price chart is that a new candlestick will form every 5 minutes on the chart from the moment the market opens for trading.
Here are two different candlesticks you will see on the stock chart – green and red candlesticks.
A green candlestick means that the stock price has gone up while a red candlestick means that the stock price has gone down.
This color-coding makes it easier for you to tell the direction of the stock price movement.
Now, let’s take a look at an actual candlestick chart.
Below is the stock price chart of Apple Inc. on 13th Aug 2020, as you can see from the horizontal axis of the chart.
This is a 1-Day chart that shows the real-time stock quotes for this trading day.
If you are day trading stocks, you will be using this chart most of the time.
For this chart, I choose the 5-minute time frame.
Generally, you can use a cross cursor to help you find the exact stock price traded.
On the stock chart below, you can see that I moved my cross cursor over a green candlestick.
This candlestick tells you the stock price movement during the 5-minute trading period from 15:15 am to 15:20 am.
Now, let me break it down for you.
First of all, it’s a green candle which means the share price has gone up during the 5 minute trading period (i.e. the close is greater than the open)
At the start of the 5-minute trading period, the stock price opened at $458.52.
During the 5-minute trading period, the stock price went up as high as $459.65 and went as low as $458.088.
At the end of the 5-minute trading period, the stock closed at $459.36.
Generally, we call the green candlestick bullish candlestick and the red candlestick bearish candlestick.
As you can see from the one-day stock price chart below, the stock price started trading in pre-market hours from 4:00 am all the way to the market opening at 9:30 am.
Once the market opens at 9:30 am, the stock price continued to go up slowly to the day high at $464.17.
After reaching the peak of the day, it started to keep going down until the market close.
Toward the market close, it went slightly up a bit and closed the trading day at around $460.
After the market closes at 4 pm, you can still trade after market hours from 4 pm to 8 pm.
Of course, it takes some practice to get yourself familiarized with reading candlestick stock charts.
But, once you get used to using candlestick stock charts, chart reading will become more natural to you.
The above-mentioned stock chart example covers only 1-day price chart which shows the stock price movement throughout the entire trading day.
But, if you want to see the price movement for the past one year or 5 years, you can always choose the specific date range you are interested in and then generate the stock charts.
There is a list of common date ranges for stock charts:
- 5 Day (i.e. the last 5 trading days)
- 1 Month (i.e. the last one month )
- 3 Months (i.e. the last three months)
- 6 Months (i.e. the last six months)
- Year To Date
- 1 Year (i.e the past year)
- 5 Years (i.e. the past five years)
- Max (i.e. since the very first day the stock started trading on the stock exchange)
Generally, if you are picking stocks for long-term investment, then you want to take a look at the stock chart over a longer period of time.
But, if you are trading stocks for short-term profits, then you want to look at stock charts over a shorter period of time such as one day.
Recommended Resources To Help You Make Money In Stock Market
So, to make money from the stock market, you first need to know what good stocks you can invest in.
But, no one can possibly scan the entire stock market for good investment opportunities because you simply don’t have the time. (by the way, there are close to 4,000 stocks listed on US stock exchanges alone)
Also, there are always other people who have more knowledge and experience in a particular industry than you, so you would probably miss some great stock ideas that are hard to discover on your own.
First of all, let’s take a look at Motley Fool Stock Advisor’s track record.
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But, what about its individual stock picks?
This metric is important because I might not be buying every single stock recommendation made by the Motley Fool Stock Advisor.
Below is a table that shows you the performance of individual stock picks over the years.
As of 6th September 2023, Motley Fool Stock Advisor has had 173 stock recommendations with 100%+ returns.
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