Basic terms for reading a stock chart, plus common indicators like moving averages and RSI and popular chart patterns. Keep in mind that all of them are reference signals drawn from past prices. 37 terms in total.
A chart that draws each day's open, high, low and close as a single bar. If the close is above the open it is a bullish (up) candle, usually red in Korea; if lower, a bearish (down) candle, usually blue. U.S. sites more often use green for up and red for down.
The thin lines extending above and below a candle's body. A long upper wick means the price rose during the day but sellers pushed it back down; a long lower wick means it fell but buyers pushed it back up.
The number of shares traded in a day. When the price moves a lot and volume is well above normal, the move is seen as having real force behind it.
The total money value of shares traded in a day, roughly volume multiplied by price. For stocks with very different share prices, trading value is a better way than volume to see where market attention is concentrated.
e.g. A stock priced at 50,000 won with 1 million shares traded has about 50 billion won in trading value
A line connecting the average closing price over a recent period. The 5-day and 20-day lines show short-term direction, the 60-day and 120-day lines the medium term, and the 200-day line the long term. A price above a moving average is stronger than that period's average.
When moving averages are stacked from shortest at the top to longest at the bottom, it is bullish alignment; when the long lines sit above the short ones, it is bearish alignment. Bullish alignment is read as an ongoing uptrend and bearish alignment as an ongoing downtrend.
e.g. Price > 5-day > 20-day > 60-day > 120-day average means bullish alignment
When a short-term moving average crosses above a long-term one it is a golden cross; when it crosses below, a death cross. They are treated as trend-change signals, but they often show up after the price has already moved.
The highest and lowest prices over the past year (52 weeks). They show where the current price sits within its one-year range.
Setting the highest price in a given period is a new high; setting the lowest is a new low. The period is usually named, as in a 52-week high or an all-time high (the highest since listing).
A support level is a price zone where a falling stock has often stopped; a resistance level is a zone where a rising stock has often been blocked. LightView reports show them in the price-zone section, together with moving averages and 52-week highs and lows.
A straight line drawn through a chart's lows or through its highs. A rising line through lows is an uptrend line and a falling line through highs is a downtrend line; a price breaking out of the line is sometimes read as a trend change.
A stretch where the price just moves up and down within a fixed band without breaking above or below it. The top of the band acts as resistance and the bottom as support.
e.g. A stock that has stayed between 50,000 and 60,000 won for months
A price pushing up through resistance or the top of a range is a breakout; falling below support is a breakdown. A move counts for more when volume rises with it, and 'false breakouts' that quickly reverse are common.
An empty space with no trading between one day's close and the next day's open. Opening far above the prior close on good news is a gap up; opening far below on bad news is a gap down. Gaps often appear the day after earnings.
A candle with an unusually long body. A long bullish candle means buying pressure stayed strong all day; a long bearish candle means selling pressure did. With heavy volume, it is sometimes seen as the start of a trend.
A candle whose open and close are almost the same, leaving a very thin body. Buyers and sellers were evenly matched, so it is read as a sign that an up or down move may pause or reverse.
A short dip while a rising stock takes a breather. Investors who believe the uptrend is intact sometimes treat it as a buying opportunity, though it can also turn into a real downtrend.
A brief rebound in a sharply falling stock before it drops again. The name comes from the saying that 'even a dead cat will bounce if it falls from high enough,' and it is a warning that a rebound may not be the true bottom.
Overbought means a price has risen so much in a short time that it looks due for a rest; oversold means it has fallen too far. Indicators like RSI and the stochastic oscillator are used to judge this, but in a strong trend the condition can last a long time.
An indicator that compares recent gains and losses on a 0 to 100 scale. A reading above 70 is usually seen as overheated and below 30 as oversold.
An indicator that uses the gap between a short-term and a long-term moving average to gauge trend strength and direction. When the MACD line crosses above its signal line, it is read as a bullish signal.
Bands drawn above and below the 20-day moving average at twice the standard deviation of price swings. A price touching the upper band is often read as short-term overheated, and touching the lower band as short-term oversold.
An indicator that shows where the current price sits within the high-low range of a recent period, on a 0 to 100 scale. Above 80 is usually overbought and below 20 oversold, and crossings of the %K and %D lines are used as signals.
A percentage showing how far the price is from its moving average. A reading well above 100 suggests the price has run too far above average and may pull back; one well below 100 suggests a possible rebound.
e.g. An 11,000 won price with a 10,000 won 20-day average gives a 20-day disparity of 110%
The average daily price range over a set period. It shows the size of price swings, not direction, and is used to set stop-loss prices and to calculate indicators such as Supertrend.
An indicator that uses the average price range (ATR) to show, with a single line, whether the trend is up or down. A price above the line is an uptrend and a price below it is a downtrend. LightView charts label it on the right with its name and price.
An indicator that shows how strong a trend is on a 0 to 100 scale. It does not say whether the price is rising or falling; a higher value means a stronger move in one direction. Readings of about 20 to 25 or lower usually mean there is no clear trend.
A running total that adds the volume of up days and subtracts the volume of down days. If the price is flat but OBV is rising, it can be read as quiet accumulation.
The average of the day's trade prices weighted by volume. It shows the average price investors paid that day, and institutions and short-term traders widely use it as a trading benchmark.
When the price and an indicator move in opposite directions. A price making new highs while RSI falls signals fading upward strength (bearish divergence); the reverse is read as a rebound signal (bullish divergence).
An indicator developed in Japan that uses five lines (conversion line, base line, leading spans 1 and 2, and lagging span) and the cloud between the two leading spans to show trend, support and resistance together. A price above the cloud is read as an uptrend and below it as a downtrend.
A way to estimate how far a price may pull back after a big rise or fall, using ratios such as 23.6%, 38.2%, 50% and 61.8%. Because many investors watch these levels, they can act as support or resistance.
e.g. After a rise from 10,000 to 20,000 won, a 38.2% retracement is about 16,180 won
A pattern with three peaks in which the middle one is highest: left shoulder, head and right shoulder. It is read as a sign that an uptrend is ending, and is considered complete once the price breaks below the neckline joining the lows under the shoulders. The inverted version is a bottom signal.
A W-shape where the price hits a low twice at a similar level and then rises is a double bottom; an M-shape with two highs followed by a decline is a double top. They are read as signs that a decline or an advance, respectively, is ending.
A pattern in which the price curves down and back up to form a cup, dips slightly to form a handle, and then rises again. A breakout above the high at the top of the handle is read as a sign the advance will continue.
A theory that prices move in repeating cycles of five waves up and three waves down. It is used as a framework for market psychology, but the interpretation changes a lot depending on where you start counting waves.
Charts and indicators are reference signals built from past prices and volume, and they do not guarantee future prices. Signals can easily fail in the face of big changes like earnings or news, so it is best to use several indicators together with an understanding of the company.