From zero
04 From zero · Traditional markets · United States

How to read a price chart

The same share, the same data, and four different stories. The chart does not lie — it answers exactly the question whoever drew it chose to ask.

Fêr UlianovOpening · 17 s · in Portuguese

The sentence
On the one-year chart Aurora Foods looks to be in free fall; on the five-year one the same drop is a step. The axis starts at 55, not at zero, and the scale is linear.

Blurred on purpose. It describes three choices, not a fact.

The basics

Two axes, and one point per moment

A price chart has time lying along the bottom and price standing up the side. Each point is the price at a moment — the end of a day, a week, a month — and the line is merely what joins them.

That is all of it. The difficulty is not understanding the drawing: it is noticing that three choices were made before you looked, and that none of them appears in the line. Which slice of time went in. Where the price axis starts. Whether the scale is linear or not.

price time
From here on, the same fictional Aurora Foods series in every figure — five years of weekly closes. None of the data is real; what is real is the effect of each choice.
Choice 1

The window decides the story

This is the commonest manipulation, and almost always without ill intent: the writer picks the period that supports the sentence they were going to write anyway. Not one number needs changing.

Switch the window. It is the same data in all of them.

From
To
Over the period

Four windows, four possible headlines, not a single number altered. Which is why the first thing to look for on a chart is the period — and the second is to be suspicious when it isn't written down.
Choices 2 and 3

Where the axis starts, and how it grows

The price axis almost never starts at zero, and that is correct. A share swinging between 55 and 80 on a chart running from 0 to 80 becomes a nearly flat line: the information disappears. There is no trick here — there is a convention.

The trick appears when the axis is tight and nobody says what it runs from and to. Then a 2% move fills the height of the page and looks like a disaster. The defence is simple: read the numbers up the side before you look at the line.

The third choice is the scale. On a linear one, the same vertical distance is always the same number of dollars. On a logarithmic one it is always the same percentage — which is why charts spanning many years ought to be logarithmic: without it, the recent years, at higher prices, visually crush everything that came before.

The same five years, four combinations. Notice that the 210% rise looks modest on the zero axis and violent on the fitted one — and that the logarithmic scale is the only one where the early years remain visible.
Comparing

Two shares compare only in percentages

Lesson 01 comes back here: a share's price alone tells you the size of nothing, and therefore the performance of nothing. A share that went from $20 to $62 gained 42 dollars; one that went from $8.10 to $32.40 gained 24 — but the second returned far more.

That is why every honest comparison chart starts both lines at the same point — usually 100 — and shows percentages. Putting two shares in dollars on one axis compares what cannot be compared.

Aurora Foods Bertoldo Coffee
In dollars, Aurora looks like it is taking off and Bertoldo looks stuck. Rebased to 100, Bertoldo gained more. No number changed — the question the chart answers changed. Fictional companies and series.
The proof

Now read the sentence

It's the same one from the top, unblurred. Tap each highlighted part.

On the Aurora Foods looks to be in ; on the one the same drop is a step. The axis , and the .
Start here

Five pieces

Each highlighted part is a choice made by whoever drew it. Tap one.

Five taps and the sentence is done.

You can already answer these

If this landed, the lesson did what it promised

  • Before looking at the line, find the period, the start of the axis and the scale.
  • The same share is rising and falling at once, in different windows.
  • An axis not starting at zero is normal on a price chart — the problem is not saying so.
  • Two shares compare only in percentages, never in dollars.

Fêr UlianovClosing · 20 s · in Portuguese

Educational material. Aurora Foods and Bertoldo Coffee are fictional companies and both price series were constructed for this lesson — none of the data is real. What is real is the effect of each choice on the drawing. It is not a recommendation to buy or sell.