The fine print of trading and investing

Quiz · Stock Trading · Beginner

The Blind Spot Quiz: What a Price Chart Leaves Out

Price, volume and time are all a chart holds. Test what a price chart leaves out, and learn where to look up each missing piece before you trade.

AI-assisted, reviewed by the The Margin Report human editor: John Todora → Marked as you go Published

What it tests

Whether you know which facts sit off the chart, from the earnings date and share count to borrow, liquidity and your broker's margin rules.

What does a chart know about next Tuesday? Nothing. A price chart records trades that already happened: the price, the volume and when they took place. Everything that will move the stock next, from a scheduled report to a share sale the company filed last week, lives in documents that never draw a single candle, and a trader who reads only the chart is trusting that none of them matters this time.

The cost of a blind spot is easy to put in dollars. It usually arrives as a stop that fills a long way from where you placed it.

A stop the chart could not protect

The loss came in at three and a half times the plan. The chart was accurate the whole time, and it simply had no row for the report date.

Where the missing pieces live

Off-chart facts come from a handful of places. The company publishes some of them in press releases and in its filings with the SEC, including the prospectus that sets the terms of a lockup period after a listing. Your broker holds others: its screens, its rate tables and the margin agreement you signed, whose house rules can change on a stock that has not moved at all, as the page on why a stock may not be marginable explains. The rest comes from the market around the stock.

Short sellers have an extra source to check. The stock borrow fee is a daily cost that never appears on a candle. It can change while you hold the position.

Using a wrong answer

Each question gives you a chart in words and asks what it left out. Suppose you miss one. Write down the document or screen where the missing fact lives, then add it to a pre-trade checklist, since the point of the exercise is a list you check before every order, one that runs from the calendar to the borrow screen and ends with your own margin agreement. The stock trading hub collects the related pages. Try again once the list exists.

Pick an answer to mark it

The questions

  1. The situationA stock's daily chart shows a tidy uptrend: higher highs, higher lows and steady volume. You plan a swing trade you expect to hold for about two weeks.

    1Which of these can the chart not tell you?
    Show the answer

    B: Whether the company reports earnings during your holding period. The report date comes from the company's announcement or an earnings calendar, never from price history. A report inside the holding period can move the stock overnight, well past a stop that only works while the market is open.

  2. The situationA hypothetical company's stock has run up strongly. Last week the company filed with the SEC to sell 10 million new shares. It has 50 million shares outstanding today. The chart shows nothing unusual.

    2What does the filing mean for someone who owns the stock?
    Show the answer

    C: The share count would rise by 20%, and new shares add supply, often at a price below the last trade. Ten million new shares on top of 50 million is a 20% increase, so each existing share owns a smaller slice of the company. Follow-on offerings are commonly priced at a discount to the market, and the extra supply can weigh on the stock while it is sold.

  3. The situationA stock's own chart shows a clean breakout above a two-month range. Its sector has fallen for six weeks, and the broad index trades below its 200-day moving average.

    3What does the single-stock chart leave out?
    Show the answer

    A: The current against it: its sector and the broad market are both falling. Much of a stock's daily movement comes from its sector and the market as a whole. A long breakout while both are falling has to fight that pull, so check the index and the sector chart before trusting it or sizing it like a normal trade.

  4. The situationA $5 stock has a chart as neat as any large company's. It trades about 20,000 shares a day, around $100,000 in value. You plan to buy 10,000 shares.

    4What problem does the chart hide?
    Show the answer

    D: Your order would equal half a day's volume, so getting in and out would move the price against you. 10,000 shares against a 20,000-share day is 50% of the volume. An order that size pushes the price up on the way in and down on the way out, and the spread widens when you most need to leave. Liquidity lives in the volume and the quote, off the candles.

  5. The situationA stock's chart shows a breakdown below support, and you want to sell it short for a few weeks.

    5What do you need to confirm before the trade can exist at all?
    Show the answer

    A: That your broker can borrow the shares for you, and what the borrow fee is. A short sale needs borrowed shares, and a broker must be able to find them before the order goes in. Scarce shares carry a fee: at a hypothetical 20% a year on a 360-day basis, a $10,000 short held 36 days costs $200. Neither fact appears on a chart.

  6. The situationYou hold a $20,000 position on margin with a $12,000 loan, so your equity is $8,000, or 40%. The broker's house maintenance requirement on this stock was 30%. After a spell of volatility the broker raises it to 50%. The chart has barely moved.

    6What happens to the account?
    Show the answer

    B: A margin call: 50% of $20,000 is $10,000, and your equity is $8,000, so you are $2,000 short. A house requirement is the broker's own rule and can be raised with little notice. At 50% the account must hold $10,000 of equity against the $20,000 position. With $8,000 of equity the shortfall is $2,000, on a day the chart shows nothing at all.

  7. The situationA stock's chart shows a low of $20 three years ago. A news story from that year says the shares traded at $80 on the same day.

    7What explains the mismatch?
    Show the answer

    C: The stock has split 4-for-1 since then, and the chart shows split-adjusted prices. Charts divide past prices by later splits so the history matches today's share count: $80 divided by 4 is $20. Old support levels, old per-share figures and prices quoted in old stories all need the same adjustment before you compare them with the chart.

Readers also ask

Where do I find a company's next earnings date?

Companies announce their report dates, usually in a press release and on the investor relations page, and many brokerage platforms show the date on the quote screen. Check it before any trade you expect to hold for more than a day or two, since a report can move the stock past your stop before the market opens.

Why do old stock prices on a chart differ from prices quoted in old news stories?

Charting tools adjust past prices for stock splits so the history lines up with today's share count. After a 2-for-1 split, a $60 price from before the split shows on the chart as $30. The news story printed the price people actually paid on the day, before any adjustment.

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