Key Takeaways
- 1Stock charts show price movement and volume over time
- 2Moving averages smooth noise and reveal underlying trends
- 3Volume confirms or contradicts price moves
- 4Chart reading supplements fundamental analysis — it does not replace it
- 5Our momentum factor quantifies trend information systematically
#The Basics: Price and Time
Every stock chart plots two fundamental variables: - Y-axis: Stock price (or percentage return) - X-axis: Time (days, weeks, months, or years)
Chart Types
| Type | What It Shows | Best For |
|---|---|---|
| Line Chart | Closing prices connected by a line | Long-term trend overview |
| Candlestick | Open, high, low, and close for each period | Short-term trading analysis |
| Bar Chart | Similar to candlestick with different visual | Technical analysis |
#Volume: The Confirmation Signal
Volume measures how many shares traded during a period. It confirms or contradicts price moves:
- Price up + high volume = Strong buying conviction (bullish)
- Price up + low volume = Weak rally, may reverse
- Price down + high volume = Strong selling pressure (bearish)
- Price down + low volume = Lack of conviction, may stabilize
#Moving Averages
Moving averages smooth daily price fluctuations to reveal the underlying trend:
| Moving Average | What It Shows |
|---|---|
| 50-day SMA | Short to medium-term trend |
| 200-day SMA | Long-term trend |
Key Signals
- Price above 200-day MA — Stock is in a long-term uptrend
- Price below 200-day MA — Stock is in a long-term downtrend
- Golden Cross — 50-day crosses above 200-day (bullish)
- Death Cross — 50-day crosses below 200-day (bearish)
#Support and Resistance
- Support — A price level where buying tends to emerge, preventing further decline
- Resistance — A price level where selling tends to emerge, capping upside
These levels form because investors remember past prices and act on them — creating self-reinforcing patterns.
#How Charts Connect to Our Model
Our momentum factor (25% weight) quantitatively captures what charts show visually:
- 12-month price return = Is the stock trending up?
- Trend strength = Is momentum accelerating or decelerating?
Charts provide visual confirmation of what our numbers already tell you. A stock with a high momentum score will typically show a strong uptrend on its chart.
Last updated: February 10, 2026