Learn How to Read Stock Charts Like a Book

You can read a stock chart like a book. It breaks down into 3 components: title, chapter, and the words - just like a book. And, all of these components make up the story.

The Title

This is the chart pattern that you want to look for first. It is the "big picture" look at the daily chart. And, like a book, it tells you if the "story" might be interesting to read. So, set your daily chart to go back 6 or 7 months. This will give you plenty of room to identify patterns.

Here is an example:

read charts title

This looks like a good potential trade on the short side. It has entered a stage four down trend. Now we just need a price pattern.

The Chapter

The price pattern is just a pull back on the daily chart. Here is the same chart as the one above a few days later.

read chart chapter

This is a near perfect setup on the short side. This stock has rallied up to resistance and it is the first pull back after a break down. Nice. But, there is one thing missing...

The Words

Candlestick patterns are the words in the chapter. It looks like this:

read chart words

There were three up days in a row and then a down day. This is a good sign that the previous momentum has shifted from buyers to sellers. Ideally, a bearish candlestick pattern like a shooting star, engulfing, or a dark cloud cover pattern will show up here.

Here is what happened...

read chart final

Most new traders don't look at charts this way.

They tend to focus exclusively on the "title". Or, they get caught up in the "words". It's almost like they have a sort of tunnel vision and only look at one aspect of the chart. And, I'm sure I had the same problem when I first started trading.

Every stock chart tells a story. The next time you trade a stock, look for the title, the chapter, and the words that make up the story.

Hopefully, your story will have a happy ending!

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