All future investors should at least be able to understand the basics of reading a candlestick chart with a few simple indicators. These steps will help you understand what you are seeing as well as come up with your own ideas for future chart layouts.

Step 1: Candlesticks

The candlesticks are the red and green bars. Each bar represents an amount of time and the price movement during that time. If you are looking at a daily chart a green candle indicates that the price movement was positive on that day. A red candle indicates that the price went lower on that given day.

They are called candlesticks because of the lines that are on the tops and/or bottoms of some of them. This indicates highs and lows while the top and bottoms of the bar itself indicates the open and close. So if a price opens up at 100 dollars a share in the morning, falls to 95 dollars by midday and then rallies to close the day at a price of 105 then the candlestick would look like a green bar with a stick hanging out of the bottom. Its green because the closing price was higher than the opening price and the stick on the bottom tells us that the price fell lower than shot back up. If it it had stayed at 95 instead of coming to 105, it would just be a red bar which tells us that the stock lowered in price over that time.

Step 2: Volume

The blue bars on the bottom of the chart represent the volume. That can be interpreted as how many times the stock was traded in that particular day. A large bar that towers over the others means that more shares were bought or sold than average over that time than the surrounding days. Volume translates to liquidity and movement.

Step 3: Moving Averages.

Moving Averages are a lagging indicator that is an accumulation of price averages over a specific time period. In this chart the red line is the 9 day exponential moving average. It indicates the average of the last 9 days weighted so that the most recent days have a higher value. It tells us the short term trend for the stock. The white line shows the 50 day simple moving average which is the moving average for the last 50 days with all days being equal. The 50 day average is a good indicator for the medium range movement of the stock. The green line is the 200 simple day moving average. It tells us the long term trend of the stock.

A candlestick that is above or below these lines tells us where the price is relative to the stocks history, If its above the 9 day line its value is above the 9 day (short term) average. If a candlestick is below the 50 day moving line it tell us that the stock is trading at prices below its medium term average.