To read a US stock chart, start with the daily chart: is price above or below its 50- and 200-day moving averages, and are highs and lows rising? Then check volume on big moves, gaps between sessions, the next earnings date and how the stock performs against its index. Only then look for patterns and entries.
Stock charts use the same candles as crypto and forex, so the basics in how to read candlestick charts apply. What differs is the structure: fixed trading hours, overnight gaps, scheduled earnings and a single consolidated volume figure. This guide covers each, then walks through an illustrative example.
Market hours and why gaps happen
US stock exchanges such as the NYSE and Nasdaq have a regular session from 9:30 a.m. to 4:00 p.m. Eastern Time, Monday to Friday, excluding holidays. Extended sessions run before the open and after the close, but they are thinner, with wider spreads.
Because trading largely pauses overnight and on weekends, the next session can open far from the prior close. That empty space on the chart is a gap.
| Gap type | Where it appears | What it often means |
|---|---|---|
| Common gap | Inside a range | Little; often filled soon |
| Breakaway gap | Out of a range or base | Start of a new move, especially on high volume |
| Continuation gap | Mid-trend | Trend acceleration |
| Exhaustion gap | Late in a long trend | Final push before a reversal |
You can only tell which type a gap was in hindsight, but context helps. A gap out of a long base on heavy volume is more significant than a small gap inside a sideways range. Note whether your chart includes extended hours; with them shown, some “gaps” disappear.
Earnings: the scheduled shock
Public companies report results each quarter, usually before the open or after the close. Earnings often produce the largest gaps of the year for an individual stock, in either direction, and technical levels offer little protection across them.
Before taking a position:
- Find the next earnings date on the company’s investor relations page or your broker.
- Decide whether your holding period crosses it.
- If it does, accept that your stop-loss may not fill at its level. A gap through your stop fills at the next available price, which can mean a much larger loss than planned.
Many swing traders reduce or close positions ahead of earnings for this reason. Either choice is valid; not knowing the date is not.
Volume: one consolidated number
Unlike crypto, US stocks report consolidated volume across venues, so a stock’s volume bar is a fairly complete picture of activity. Use it to judge conviction:
- Breakouts above resistance on volume well above the recent average are more convincing than breakouts on light volume.
- Pullbacks on falling volume within an uptrend are usually healthier than pullbacks on rising volume.
- Climactic volume, an unusually large bar after a long move, can mark exhaustion.
Compare each bar with the 20- or 50-day average volume rather than reading the raw number. The volume analysis guide goes deeper, and the VWAP indicator guide covers volume-weighted price for intraday reading.
The 50- and 200-day moving averages
The two most widely watched lines on a stock chart are the 50-day and 200-day simple moving averages. They matter partly because so many market participants watch them.
- Trend filter. Price above both averages, with the 50 above the 200, is a common definition of an uptrend. The opposite describes a downtrend.
- Dynamic support and resistance. In a healthy uptrend, pullbacks often pause near the 50-day. The 200-day is a deeper line that many longer-term investors use.
- Crossovers. The 50-day crossing above the 200-day is sometimes called a golden cross; crossing below, a death cross. They lag price considerably and generate false signals in choppy markets, so treat them as confirmation of what the chart already shows.
For faster trend reading, some traders add a 20-day EMA. See RSI, MACD, ATR and EMA explained for how the indicators differ.
Relative strength versus the index
A stock rising 5% while its index rises 10% is underperforming, even though it went up. Relative strength captures this.
The simplest version: divide the stock’s price by a benchmark index (or an index fund) and plot the result. A rising line means the stock is outperforming; a falling line means it is lagging.
Why it matters for a beginner:
- In a rising market, leaders with rising relative strength tend to be where trends are cleanest.
- A stock breaking out while its relative strength line is also making new highs has broad confirmation.
- A stock holding up while the index falls may be showing underlying demand.
Do not confuse this with the RSI, the Relative Strength Index, which measures a single instrument’s momentum and has nothing to do with the index.
Worked example on an illustrative chart
The numbers below are invented for teaching. They are not real or current prices for any stock.
Say a stock has traded in a base between 40 and 50 for three months. The 50-day average has crossed above the 200-day, and price sits above both. Its relative strength line against the index has just made a new high. Earnings were reported two weeks ago, so the next report is roughly ten weeks away.
Today the stock gaps up from 49.50 to open at 51 and closes at 52, on volume about twice its 50-day average.
- Trend: price above both moving averages, 50 above 200. Bias is up.
- Level: 50 was the top of the base. It has broken on a gap with heavy volume, a possible breakaway gap and a breakout.
- Confirmation: relative strength at a new high supports the move.
- Entry plan: rather than chase at 52, wait for a pullback toward 50.5–51, the top of the gap and old resistance. Say you buy at 51.
- Stop: below the base top with a buffer, at 49. Risk is 2.
- Target: a measured move adds the base height (10) to the breakout level (50), giving 60. Reward from 51 is 9, a risk-reward ratio of 4.5. Measured moves are rough guides, so a first partial target at 55 is also reasonable. Check the numbers with the risk-reward calculator.
- Size: with a 20,000-dollar account risking 1% (200 dollars), 200 ÷ 2 = 100 shares. Use the position size calculator to confirm.
- Invalidation: a daily close back below 49, inside the old base, means the breakout failed. Exit.
If the pullback never comes, there is no trade. Missing a move costs nothing; chasing one with a distant stop often does.
Checklist before you trade
- Check the daily trend: price relative to the 50- and 200-day moving averages, and the direction of highs and lows.
- Find the next earnings date and decide whether your holding period crosses it.
- Note any recent gaps and whether your chart shows extended hours.
- Compare volume on the key move with its 20- or 50-day average.
- Check relative strength against the benchmark index.
- Mark support, resistance and the level where the idea is wrong.
- Calculate risk-reward and position size before entering.
- Remember that a stop can gap; risk only what you can afford if it does.
- Write the plan down and review it after the trade, as described in common trading journal mistakes.
Using SnapPulse on a stock chart
SnapPulse reads a screenshot or photo of a stock chart from TradingView, a broker app or even a paper sketch and returns the detected pattern with a confidence percentage, key support and resistance drawn on the candles, an entry zone, stop, target, risk-reward ratio and a 1–10 risk score, with indicators explained in plain language. Live Charts include equities, and you can tap a chart to scan it. The Coach, an AI tutor that remembers your recent scans, can answer follow-up questions while you learn. Download SnapPulse.
Educational content — not financial advice.
