Learning to read a chart is an indispensable skill, whether you are trading stocks, futures, exchange traded funds, options, or any other venue. Chart reading is a key component of technical analysis and can give you a pretty good idea of future price movement, based on historically proven chart patterns.

 
There are many different types of charts. The most simple type of chart is the Line Chart. It shows a line connecting a closing price each day. Its simple to read, but does not really tell you the story concerning the price action of each day. The Line Chart is basically used to show general movement at a glance.

The chart I like best is the Bar Chart. On a daily Bar Chart, each day of trading produces a vertical line on the chart. The high and low values for the day determine how tall the vertical line ultimately will be, and where it is positioned on the chart. Also, a small horizontal line will appear on the left and right side of each vertical line. The left one is showing the opening price and the right one telling us the closing price for the day. A Bar Chart can also be color coded to let us know if the price ultimately went up or down. Usually green means the price went up, and red meaning the price went down after a day of trading.

Today, I have been talking about a daily chart, but there are many different time frames when it comes to charts. They normally range from one minute charts to monthly charts. On a one minute chart, each vertical line represents only one minute of trading. On a monthly chart, each vertical line represents a whole month of trading. The longer time frame charts work well for determining the long term trend and shorter time frame charts are good for finding a strategic entry or exit point. This includes trading stocks, futures, exchange traded funds, options or any other trading venue.

Understanding the Bar Chart is a great starting point for learning how to analyze the markets. It will take time to properly implement chart reading into your trading arsenal, but it will be well worth it. Fortunes have been and will be made with the use of this important trading and investing skill. Martin Pring has authored excellent books concerning this subject. I highly recommend reading them.