When investors log on to their brokerage platform to check up on their favorite company, they will likely retrieve a stock quote. A stock quote gives an instant picture of valuable information that can’t be overlooked.
Typically, a stock quote will include several key data points:
- Last Trade: The dollar price representing the most recent transaction.
- Trade Time: The exact time corresponding to the most recent transaction.
- Change: Dollar amount and percentage change corresponding to how much a stock is up or down in a day.
- Open: Dollar price corresponding to the stock’s first trade of today’s session.
- Bid: The highest price a buyer is willing to pay for a stock. When combined with the ask price information, it forms the basis of a stock quote.
- Ask: The lowest price at which someone is willing to sell the security. When combined with the bid price information, it forms the basis of a stock quote.
Now that we have gone over the basics of reading a stock quote, let’s move on to reading a stock chart.
Unlike a stock quote, a stock graph tells a story of how a stock performed over a given amount of time. The most common time frames include one-day, five-days, one-month, six-months, year-to-date (i.e. since January 1), five-years, and maximum.
Investors can look at a stock chart to find patterns. For example, if a chart shows a stock tends to rebound when it drops to a certain level, short-term or swing investors may look to buy the stock at that amount. Technical traders refer to this as a level of support.
On the other hand, if a stock rises to a certain level and then proceeds to fall without fail then technical investors may look to sell their position near that dollar amount. This is referred to as a level of resistance.
More advanced investors and traders look at charts to extract much more information. For example, the relative strength index (RSI) evaluates a stock’s chart against either the performance of a broader sector or a major index. The RSI can help investors determine if a stock chart is overbought or oversold at any given time.