📉Week 8: How to Read a Price Chart Without Being a Technical Analyst

A price chart looks, at first glance, like a jumble of lines and colored rectangles. Good news: you don't need a technical analyst certification to make sense of it. You just need to know a few basic elements – and, more importantly, understand what a chart can and cannot do.

This is week eight of the QMA educational series, and it's purely about reading a chart as supplementary context to the fundamental analysis we've covered in previous weeks.

Candlestick or line chart?

The simplest way to display price is a line chart – it connects only closing prices into a single line. It's clean, but it hides a lot of information.

A candlestick chart shows four numbers for each period:

• Open – price at the start of the period
• Close – price at the end of the period
• High – the highest price during the period
• Low – the lowest price during the period

The candle's body is a rectangle between the open and close (a green/white body usually means the close was higher than the open – price rose; a red/black body means the opposite). Thin lines above and below the body ("wicks") show the high and low.

Analogy: Imagine tracking the temperature for one day. A line chart tells you only the temperature at 6 PM. A candlestick tells you the morning temperature, the evening temperature, and the hottest and coldest moments of the day. More information, same time unit.

Timeframes: daily vs. weekly

A single candle can represent a day, a week, a month, or even an hour – depending on the chosen timeframe.

• Daily chart – each candle = one trading day. Good for tracking short-term developments and current news.
• Weekly chart – each candle = one week. It smooths out daily noise and shows a longer-term picture – suitable for investors with a horizon of months to years.
• Monthly chart – an even wider view, useful for assessing multi-year trends (e.g., for ČEZ or Coca-Cola, KO).

A practical rule for a long-term investor: look at the weekly or monthly chart first to see the "big picture," and only then at the daily chart if you're interested in a current entry point.

Trend: up, down, or sideways

A trend is the general direction price moves over time – though never in a straight line.

• Uptrend: price forms higher highs and higher lows. Example: NVDA shares in 2023–2024 went through a pronounced uptrend, even though there were sharp drops along the way.
• Downtrend: price forms lower highs and lower lows.
• Sideways trend (range): price moves within roughly the same band, without a clear upward or downward direction – typical, for example, of mature, stable companies during periods without major news.

Recognizing the trend helps you understand the "mood" the stock is currently in – not predict what it will do tomorrow.

Moving averages: SMA50 and SMA200

A moving average is simply the average price over the last X periods, which "moves forward" with each new day.

• SMA50 – the average over the last 50 trading days (roughly 2.5 months). Reacts faster to price changes.
• SMA200 – the average over the last 200 days (nearly a year). It's "slower," smoother, and shows a longer-term direction.

How they're commonly used (descriptively, not as a trading instruction):

• If price is above the SMA200, many market participants perceive this as a sign of a healthier, longer-term (uptrend) context.
• When SMA50 crosses SMA200 from below, this is called a "golden cross" and is often seen as a positive signal.
• The opposite (SMA50 crossing SMA200 from above) is called a "death cross" and is often seen as a warning signal.

These terms are important to know because you'll frequently encounter them in news and analyses – but none of them is a guaranteed predictor of future performance. It's just one of many contextual indicators.

Volume: how much was traded

Volume is the number of shares traded during a given period, usually shown as bars below the price chart.

Why does it matter?

• A large price move with high volume usually signals stronger conviction in the market (more participants were involved in the move).
• A large price move with low volume may be a weaker signal, more easily reversed.
• A sudden spike in volume is often tied to news – earnings, announcements, an analyst rating change, and so on.

Analogy: Volume is like the number of people at a square during a protest. If a few dozen people show up, that's a weak signal of sentiment. If ten thousand show up, the signal is much stronger – regardless of whether you agree with what they're saying.

The chart is context, not a crystal ball

This is the most important sentence in the whole article: a price chart shows what happened, not what will happen. Trends change, moving averages react with a lag, and volume describes past behavior, not other investors' future decisions.

A chart is useful as one of several contextual tools alongside fundamental analysis (what a company earns, how indebted it is, how it's growing) and macro context (interest rates, sector, competition). It should never be the sole reason for an investment decision.

Example: looking at ČEZ

Say an investor with a 100,000 CZK portfolio is following ČEZ shares. On the weekly chart, they see the price has long been above the SMA200 – suggesting a healthy long-term context. On the daily chart, they notice a sharp drop on high volume following quarterly results – signaling that the market reacted strongly to the news and it's worth investigating why (e.g., lower profit, a regulatory change in the energy sector).

The chart alone, however, won't tell them whether the current price is "cheap" or "expensive" – for that, they need fundamental indicators like P/E or comparison to historical averages, which we covered in previous weeks.

How to do this in QMA

• /stocks/[symbol] – each stock's detail page in QMA includes a price chart with the ability to switch timeframes (daily/weekly) and displays moving averages and volume, so you can try out the concepts described here directly on a real ticker, such as AAPL, MSFT, or KO.
• /screener – lets you filter stocks by technical conditions (e.g., price above/below SMA200), if you're interested in which companies in a given sector currently meet a particular technical context.
• /strategy – here you'll find a description of momentum signals such as TSS (Trend Strength Score) and RS (Relative Strength), which quantify trend strength and consistency, as well as how a stock is performing relative to the market or sector – a supplementary, systematic view of what you'd otherwise see "by eye" on a chart.
• /smart-money – shows how large institutional players are behaving in a given stock, which can add context to the volume spikes you noticed on the chart.
• /journal – a good place to record your own chart observations (e.g., "ČEZ above SMA200, volume rose after earnings") and later review whether your interpretation matched subsequent developments.

Disclaimer

QMA is an analytical and educational tool, not investment advice. Past performance is not a guarantee of future results. All investment decisions are your own responsibility.