​

Reading Stock Charts

Stock charts visualize price history and trading activity. Whether you’re a fundamental investor checking entry points or a technical trader studying patterns, understanding charts helps you make more informed decisions.

Rallies provides charting tools for educational and research purposes. Technical analysis has limitations and past price patterns do not guarantee future results. This is not investment advice.

​

Chart Basics

​

Accessing Charts in Rallies

1. Search for any stock
2. Open the stock page
3. The price chart is prominently displayed
4. Use controls to adjust timeframe and chart type

​

What Charts Show

At their core, charts display:

• Price on the vertical (Y) axis
• Time on the horizontal (X) axis
• Volume often shown below the price chart

This simple visualization reveals patterns that numbers alone might hide.

---

​

Chart Types

​

Line Chart

What it shows: A simple line connecting closing prices over time. Best for:

• Quick overview of price direction
• Long-term trend identification
• Clean, easy-to-read display

Limitations:

• Doesn’t show intraday price action
• Hides volatility within each period

​

Candlestick Chart

What it shows: Each “candle” represents one time period (day, week, etc.) and shows:

• Open: Where price started
• Close: Where price ended
• High: Highest price reached
• Low: Lowest price reached

Reading a candle: Best for:

• Detailed price action analysis
• Pattern recognition
• Understanding intraday range

Example interpretation:

• Long green candle: Strong buying pressure
• Long red candle: Strong selling pressure
• Small body with long wicks: Indecision, potential reversal

​

Area Chart

What it shows: Like a line chart, but with the area below filled in. Best for:

• Visualizing gains/losses from a starting point
• Clear view of overall trend
• Aesthetically clean display

​

Bar Chart (OHLC)

What it shows: Similar to candlesticks but uses horizontal bars instead of bodies:

• Left tick: Open price
• Right tick: Close price
• Vertical line: High to low range

Best for:

• Traders who prefer this classic style
• Same information as candlesticks, different visual

---

​

Timeframes

Choosing the right timeframe depends on your investment horizon. Tip: Look at multiple timeframes. A stock might look great on the 1-year chart but be in a short-term downtrend on the 1-month chart.

---

​

Volume

Volume bars typically appear below the price chart, showing how many shares traded each period.

​

Why Volume Matters

Volume confirms price movements:

• Price up + high volume: Strong buying conviction
• Price up + low volume: Weak move, possibly unsustainable
• Price down + high volume: Strong selling pressure
• Price down + low volume: Lack of selling conviction

​

Volume Patterns

Volume spike: Unusually high volume often signals:

• Major news event
• Institutional buying or selling
• Potential trend change

Declining volume: During a price move suggests:

• Weakening momentum
• Possible exhaustion of the trend

Volume confirmation: The best breakouts occur on above-average volume.

---

​

Common Technical Indicators

Rallies charts may include various technical indicators. Here are the most common:

​

Moving Averages

What they are: Average price over a specified period, plotted as a line that moves with time. Common types:

• SMA (Simple Moving Average): Equal weight to all prices in the period
• EMA (Exponential Moving Average): More weight to recent prices

Common periods:

• 20-day: Short-term trend
• 50-day: Intermediate trend
• 200-day: Long-term trend

How to use:

• Price above moving average: Generally bullish
• Price below moving average: Generally bearish
• Moving average crossovers signal potential trend changes

Golden Cross: 50-day crosses above 200-day (bullish signal) Death Cross: 50-day crosses below 200-day (bearish signal)

​

Support and Resistance

Support: A price level where buying interest tends to emerge, preventing further decline. Think of it as a “floor.” Resistance: A price level where selling pressure tends to emerge, preventing further advance. Think of it as a “ceiling.” How to identify:

• Previous highs often become resistance
• Previous lows often become support
• Round numbers frequently act as support/resistance

When levels break:

• Old resistance often becomes new support (and vice versa)
• Breakouts through resistance can signal further upside
• Breakdowns through support can signal further downside

​

Relative Strength Index (RSI)

What it is: Momentum oscillator measuring speed and change of price movements, scaled 0-100. How to read:

• Above 70: Potentially overbought (stock may be due for pullback)
• Below 30: Potentially oversold (stock may be due for bounce)
• 50 level: Neutral

Limitations: Stocks can remain overbought or oversold for extended periods during strong trends.

​

MACD (Moving Average Convergence Divergence)

What it is: Trend-following momentum indicator showing relationship between two moving averages. Components:

• MACD Line: 12-day EMA minus 26-day EMA
• Signal Line: 9-day EMA of the MACD line
• Histogram: Difference between MACD and signal line

How to use:

• MACD crossing above signal line: Bullish signal
• MACD crossing below signal line: Bearish signal
• Divergence between price and MACD can signal reversals

​

Bollinger Bands

What they are: Three lines showing:

• Middle band: 20-day SMA
• Upper band: 20-day SMA + 2 standard deviations
• Lower band: 20-day SMA - 2 standard deviations

How to use:

• Price touching upper band: Potentially overbought
• Price touching lower band: Potentially oversold
• Bands narrowing: Low volatility, potential big move coming
• Bands widening: High volatility

---

​

Chart Patterns

Some traders look for specific price patterns that historically precede certain moves.

​

Trend Patterns

Uptrend: Higher highs and higher lows Downtrend: Lower highs and lower lows Sideways/Range: Price bouncing between support and resistance

​

Reversal Patterns

Double Top: Price reaches a high twice, fails to break through, often signals trend reversal downward. Double Bottom: Price reaches a low twice, holds, often signals trend reversal upward. Head and Shoulders: Three peaks with the middle (head) highest. Can signal trend reversal.

​

Continuation Patterns

Flag/Pennant: Brief consolidation before the trend continues. Triangle: Converging trendlines that often resolve in a breakout.

​

Important Caveat

Pattern recognition is subjective and unreliable. Patterns fail frequently, and different analysts often see different patterns in the same chart. Use patterns as one input among many, not as definitive signals.

---

​

Using Charts with Fundamental Analysis

Charts are most powerful when combined with fundamental research:

​

Timing Entries

You’ve researched a company and want to buy. Charts can help:

• Identify support levels for better entry prices
• Avoid buying at resistance where price might stall
• Wait for breakouts with volume confirmation

​

Confirming Thesis

Your fundamental analysis is bullish. Check if the chart agrees:

• Is the stock in an uptrend?
• Is it showing strength relative to the market?
• Is volume increasing on up days?

If chart action contradicts fundamentals, investigate why.

​

Setting Alerts

Use chart levels for price alerts:

• Alert when price reaches support (potential buy zone)
• Alert when price breaks resistance (potential breakout)

---

​

Chart Analysis with the AI

Ask the AI for help interpreting charts:

“What do the technicals look like for AAPL?”

“Is this stock overbought based on RSI?”

“Where are the key support and resistance levels?”

“What does the volume trend tell us?”

The AI can explain what you’re seeing and provide context.

---

​

Tips for Reading Charts

​

1. Start with the Big Picture

Before zooming in, look at the long-term chart. Is the stock in a multi-year uptrend, downtrend, or range? This context matters.

​

2. Use Multiple Timeframes

A stock can be in a short-term downtrend within a long-term uptrend. Understanding both helps you make better decisions.

​

3. Volume Matters

Price moves without volume are suspect. Look for volume confirmation of significant moves.

​

4. Don’t Over-Complicate

More indicators don’t mean better analysis. Pick a few that make sense to you and use them consistently.

​

5. Combine with Fundamentals

Charts show what’s happening; fundamentals explain why. The best analysis uses both.

​

6. Remember Limitations

Charts reflect past prices. They don’t know about upcoming earnings, news events, or economic changes. Technical analysis is probabilistic, not predictive.

---

​

Common Mistakes

​

Over-Reliance on Patterns

Seeing patterns everywhere and acting on all of them leads to poor results. Be selective.

​

Ignoring Context

A chart pattern during a strong bull market means something different than the same pattern during a bear market.

​

Fighting the Trend

Trying to pick tops and bottoms is notoriously difficult. The trend is your friend until it ends.

​

Confirmation Bias

Seeing what you want to see on a chart. If you’re bullish, you might ignore bearish signals. Try to be objective.

​

Over-Trading

Acting on every minor chart movement leads to excessive trading and poor returns. Not every wiggle is meaningful.

---

​

Frequently Asked Questions

​

Do professional investors use technical analysis?

Some do, some don’t. Many professional investors combine technical and fundamental analysis. Pure technical trading is more common in short-term trading than long-term investing.

​

How reliable are technical indicators?

No indicator is reliable in isolation. Technical analysis is about probability, not certainty. Indicators work best when multiple indicators align and when combined with other analysis.

​

What’s the best chart timeframe?

It depends on your investment horizon. Day traders use intraday charts. Long-term investors focus on weekly or monthly charts. There’s no universally “best” timeframe.

​

Can the AI draw trendlines for me?

The AI can describe technical setups and identify key levels. For interactive charting tools, use the chart interface directly on stock pages.

​

Should I buy when RSI is below 30?

Not automatically. RSI below 30 suggests oversold conditions, but stocks can stay oversold during sustained downtrends. Always consider the broader context and your fundamental view.

---

​

Related Articles

• Understanding Stock Pages
• Understanding Financial Statements
• What Analyst Ratings Mean
• Setting Up Price Alerts