Nicolaj Akhavan

Reading a stock chart shows you the present and past prices, and can also help clue you in on what’s happening in the broader market. Understanding how stock charts work is a key step in becoming a better investor.

A stock chart is a graph that displays the price of a stock—or any type of investment asset—over a period of time. It typically shows the current price, historical highs and lows, and trading volumes.

A stock chart’s y-axis tracks prices and its x-axis tracks time periods—from minutes and hours to months and years. By analyzing how a stock’s price has changed over time, investors can identify trends and patterns that inform their strategy.

The bar graph at the bottom of a stock chart tracks trading volume, which measures the number of shares of stock that are bought and sold in a given time period. Volume represents how much demand there is for a particular stock.

Investors often watch for big spikes in trading volume, as they tend to coincide with insider or institutional buying, important news or a change in a stock’s trend or pattern.

Stock charts typically include data on a company’s underlying business metrics, commonly referred to as a company’s “fundamentals.” Investors use metrics like revenue, earnings per share (EPS) and free cash flow for fundamental analysis of a stock.

Fundamental analysis involves analyzing a stock by comparing its business fundamentals to its stock price and attempting to identify value. One popular fundamental analysis metric is price-to-earnings ratio, which is calculated by dividing a stock’s share price by its EPS. The lower a stock’s P/E ratio, the more attractive it may be to value investors.

Technical analysis is an alternative to fundamental analysis that is focused purely on a stock’s past price movement. Technical analysis involves recognizing patterns or trends in a stock chart and using them to predict future price movement.

Technical traders often identify support and resistance levels in a stock chart, which are price ranges at which a stock is likely to change direction. Many technical traders also use other price and volume-derived indicators, such as moving averages, Bollinger Bands and oscillators to identify potential buy and sell points.

There are a variety of stock chart styles. Line charts, candlestick charts and bar charts are among the most common styles—each provide investors with a different way of looking at similar information, including opening and closing prices as well as intraday highs and lows.

In a candlestick chart, the opening and closing prices of a period are represented by the body of each candle. The intraperiod highs and lows are represented by the “wicks” or “shadows” of the candle, vertical lines that extend out from the tops and bottom of the candle body.

In a bar chart, the intraperiod trading range is represented by a vertical line, and the opening and closing prices are represented by horizontal notches that extend out from the vertical line to the left and right, respectively.

Traders use stock charts to identify patterns that tend to signal a future price move in one direction or another.

For example, a double or triple top or bottom is a commonly used reversal pattern. When a stock in an established trend “bounces off” a particular level two or three times without continuing past it, it can be a signal the stock’s trend is reversing.

A cup with handle pattern is created when a stock makes a large U-shaped dip followed by a slight downward pullback, forming a shape that looks like a teacup with a small handle. The cup with handle pattern is typically considered a bullish signal to buy a stock.

Stock traders also watch for stocks to break outside established patterns.

When a stock has been trading in a pattern such as a channel, a triangle or a flag pattern, a breakout of that pattern in one direction or another can indicate the direction of the breakout will be the new longer-term trend for the stock.

Traders look for high trading volume to confirm a true breakout has occurred.

Traders use stock charts and technical analysis as their primary means of determining when to buy and sell stocks. Long-term investors use stock charts to get a general sense of a stock’s price trend or relative performance.

Joel Elconin, co-host of Benzinga’s PreMarket Prep and co-founder of PreMarketprep.com market research firm, says it’s easy to get overwhelmed with technical analysis, so new traders should keep things simple.

“Many investors overcomplicate technical analysis and can end up with analysis paralysis,” Elconin says.

“I try to keep it simple for short-to-medium term trading and focus on easy patterns, such as double and triple tops and bottoms and multiple closes at the same level.”

In addition, Elconin says traders should understand that fundamental news, such as an earnings beat or a CEO departure, will typically have a larger influence on stock price movement than technical patterns or trends. These headlines are often unpredictable, so traders should never commit too heavily to technical patterns.

Individual stock charts give investors a great deal of insight into a stock’s past performance and its potential future performance. However, comparing two different stock charts can offer even greater insights into the stock and the overall market.

Ryan Johnson, a chartered financial analyst (CFA) and managing director of investments for Buckingham Advisors, says investors should take advantage of the overlapping stock charts function on free platforms such as Stockcharts.com and Yahoo Finance.

“We suggest not just looking at a stock’s price chart, but looking at a stock price in comparison to that stock’s sector ETF or a broader stock market index overall,” Johnson says.

“We feel it is important to judge your investment performance not only on a total return basis but also in comparison to alternatives in the marketplace.”

Stock charts are a key tool for all investors, but the best way to use them depends largely on an individual investor’s goals, risk tolerance, trading style and investing time horizon.

Darren Colananni, certified financial planner (CFP) and wealth management advisor at Centurion Wealth Management, says investors should make sure to look at a stock’s chart on multiple time frames to get a better understanding of short, medium and long-term trends. However, he says long-term investors shouldn’t put too much emphasis on stock charts.

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You are free to use this image on your website, templates, etc, Please provide us with an attribution linkHow to Provide Attribution?Article Link to be HyperlinkedFor eg:Source: Dividend Tax Credit (wallstreetmojo.com)

The taxpayer includes the grossed-up dividend amount as taxable income on their income tax form. However, the government allows citizens a tax credit equivalent to a grossed-up percentage to reduce tax liability. The government designed this tax provision to encourage citizens to invest. Therefore, the government fosters investments and promotes the economy‘s growth by providing a tax credit for eligible gains.

The dividend tax credit is a provision that helps reduce tax liability by deriving income from dividends. Every nation has a tax administration system. In the US, it is the IRS (Internal Revenue Service). Similarly, in Canada, the Canada Revenue Agency (CRA) manages the whole taxation. This form of the tax credit is common in Canada. It helps to eliminate the issue of double taxation. When a corporation earns a profit, it must pay corporate income tax. Additionally, when the corporation distributes a portion of its earnings as dividends to its shareholders, the shareholders must pay income tax on the dividends they receive.

Dividends are a portion of a company’s profit distribution among its shareholders. The corporation has typically paid the taxes on these dividends as they are paid after-tax earnings. Furthermore, the dividend tax credit rate is based on the type of earnings received and the individual’s tax rate. At the same time, the amount of this tax credit varies depending on the country and the bonus type received. Hence, eligible bonuses are subjected to the gross-up mechanism, the federal dividend tax credit rate for 2023 is 15.0198% for individuals whose taxable income is below the federal gains gross-up threshold and 9.215% for individuals whose taxable income is above the threshold.

Therefore, some countries offer a foreign dividend tax credit to their residents that receive gains from foreign companies. Although the gains are generally paid quarterly or yearly, claiming the proper tax credit and reporting bonuses from a sound source is essential for effective dues planning. The eligible dividends fall in the enhanced dividend tax credit category, and an individual has to pay a higher tax on it.

The taxpayer then pays a gross-up on the dividends to restore the dividend income into pretax income and earn the dividend tax credit.

Let’s assume Hagrid is a Canadian citizen. He has been a wise investor and bought many company shares on which he earns dividends. For example, let’s take that Hagrid’s effective tax rate is 25%. For 2022, Hagrid’s eligible dividend earnings are $180. In contrast, Hagrid’s non-eligible dividends account for $189.

As per CRA (Canadian Revenue Agency), the designated percentage for eligible dividends is 38%. On the other hand, for non-eligible dividends, it is 15% when Hagrid grossed up the total dividends.

Taxable income= (180 x 1.38) + (189 x 1.15)

=$248.4 + $217.35

=$465.75

Therefore Hagrid reports a total of $465.75 as his taxable income. As per the 25% effective tax rate, he will pay a tax = $465.75 x 0.25% =$116.43

As per CRA, the eligible dividend tax credit is set at a tax rate of 15.0198%

$248.4 x 15.0198%

=$37.30

For non-eligible dividends, the CRA has set a tax rate of 9.0301%

$465.75 x 9.0301%

=$42.05

Summing up both eligible and non-eligible dividends, Hagrid’s total tax credit will become= 37.40 + 42.05= $79.45

Subtracting this federal dividend tax credit from Hagrid’s original tax payable determines the reduction which is equal to $36.98 (116.43 – 79.45)

For both eligible and non-eligible gains, these are simple calculation examples of a tax credit. Likewise, in Canada, there is both federal and provincial tax credit, which means that if Hagrid had lived in Alberta, he would have also claimed a 10% provincial tax credit which would further reduce his tax liability.

This article has been a guide to what is Dividend Tax Credit. Here, we explain it in detail with its calculation method and a few examples. You may also find some useful articles here –