Three points to keep
- Read index moves in percent, not points; a 100-point move means very different things on different indices.
- A stock quote shows bid, ask, last price, volume and range; together they tell you how active and how liquid a share is.
- Breadth, sectors and the reason for a move matter more than the size of one day's change.
How to read the stock market starts with a habit: treat any single number with suspicion until you know what it measures. "The market fell 300 points" says little on its own. Which index, from what level, on how much trading, and did most shares fall or only a few large ones? This guide shows how to read the figures you see every day on financial news pages and stock screens, and what each one does and does not tell you.
Index moves: points versus percent
News headlines often quote index changes in points. Points depend on the index's level, so they cannot be compared across indices or over long periods. Percent can.
Illustrative example: an index that closes at 5,000 and then rises to 5,075 has moved 75 points, which is (5,075 − 5,000) ÷ 5,000 = 1.5%. The same 75 points on an index at 40,000 would be under 0.2%.
Know how the index is built
- Market-value weighted indices such as the S&P 500, FTSE 100, ASX 200 and Nifty 50 give larger companies more influence. A handful of very large firms can drive the whole index.
- Price-weighted indices such as the Dow Jones Industrial Average and Nikkei 225 give more influence to shares with a higher price per share, regardless of company size.
- Total-return indices such as the DAX assume dividends are reinvested, so they are not directly comparable with price-only indices.
Reading a single stock quote
| Field | What it tells you |
|---|---|
| Last price | The price of the most recent trade. Not necessarily what you could trade at now. |
| Bid / ask | The best prices to sell and buy right now. A wide gap signals lower liquidity. |
| Change | Difference from the previous close, in currency and percent. |
| Volume | Shares traded today. Compare with the average to judge whether a move has broad participation. |
| Day range / 52-week range | Where today's and the past year's prices have been. Context, not a forecast. |
| Market capitalisation | Share price × shares in issue. At an illustrative $42.50 and 2.4 billion shares, that is $102 billion. |
| P/E ratio | Price ÷ earnings per share over a stated period. Useful mainly for comparison with peers and with the company's own history. |
| Dividend yield | Annual dividends ÷ price. Based on past payments, which can change. |
Remember the timing. Many free quote pages delay prices by several minutes, and outside the regular session (09:30 to 16:00 in New York, 08:00 to 16:30 in London) prices may reflect thin pre-market or after-hours trading.
A practical tip for beginners: when comparing two companies, use the same data source and the same date for both. Ratios such as P/E can be calculated on past or forecast earnings, and mixing the two gives a misleading comparison.
Breadth: how many shares took part
An index can rise while most of its members fall, if a few heavyweight companies rise strongly. Breadth measures try to catch this:
- Advancers versus decliners: the number of shares that rose against the number that fell.
- New highs versus new lows: how many shares reached 52-week highs or lows.
- Equal-weighted comparisons: comparing an index with an equal-weighted version of the same basket shows whether gains are concentrated.
Broad participation suggests a move reflects widespread buying or selling; narrow participation suggests it rests on a few names.
Sectors and the reason for a move
Sector performance shows where money is moving: technology, banks, energy, consumer staples and so on. A day on which defensive sectors rise while cyclical ones fall tells a different story from one in which everything rises together. Scheduled events explain many large moves: company results, central bank decisions, inflation and employment data. When a move has no obvious news behind it, be cautious about any explanation offered after the fact.
Reading a price chart quickly
Charts compress a lot of the same information into a picture. Before drawing any conclusion, check three settings: the time range (a day, a year, ten years), the scale (linear, or logarithmic, which shows equal percentage moves as equal distances) and whether the line includes dividends. A share that looks flat on a price chart may have delivered a reasonable return through dividends, and a long-term chart on a linear scale makes recent moves look larger than early ones.
Candlestick charts show the open, high, low and close for each period; volume bars underneath show how much traded. A large move on heavy volume carries more information than the same move on light volume.
How to read the stock market without overreacting
Daily figures are noisy. A useful routine is to check the percentage move of a broad index, look at breadth and sector leadership, note any scheduled event that explains it, and then zoom out to a longer chart. Most single days make little difference to a long-term holding, while reacting to them with trades adds costs every time. Our guide to how the stock market works covers the structure behind these numbers, and the glossary defines each term.
Reader questions
Why does the Dow move more points than the S&P 500?
The Dow's level is far higher and it is calculated differently, as a price-weighted average. A point move on each index therefore represents a different percentage; compare them in percent.
Is volume important for a long-term investor?
Less than for a trader, but it shows how easily you can buy or sell and whether a big price move had wide participation. Very low volume shares often have wider spreads.
Where can I see the market live?
Exchanges and many financial sites publish real-time or slightly delayed data. Check the timestamp and whether the price is from the regular session or extended hours.
Sources
- S&P Dow Jones Indices, index methodology documents
- FTSE Russell, FTSE 100 ground rules
- Deutsche Börse, DAX index guide
- Exchange trading-hours notices: NYSE and London Stock Exchange