Technical Stock Charts & their Type
A chart is a graphical representation of price and volume movements of a stock over a certain period of time. In the graphical chart, the X-axis represents the time period and the Y-axis represents the price movement. The time period can vary from intra-day to even a few months or more.
Stock Charts in Technical Analysis
Before we get into analysis of charts it is important to understand the four type of prices which are used in charting, these are:
- Open Price,
- Low Price,
- High Price and
- Close Price.
open price are a reflection of actions by amateurs who watch overnight developments ,global cues ,gather information from newspapers and make up their mind even before the opening of the market. they jump in to execute their buy or sell orders the moment market opens.
High price reflect the strength and power of the bulls.
low prices show the strength of the bears, while closing prices show the mood of the professionals.
Types Of Charts
There are different Types of Charts, such as line charts ,bar charts ,candle stick charts ,etc.
We now turn to the construction of line, bar, Candlestick and point and figure charts. Although there are other methods available, these are four of the most popular methods for displaying price data.
Important Technical Analysis Tools
Technical Indicators and Overlays
Future And Option Market
- Candlestick chart and Pattern
* Candlestick chart
What are the different types of charts
As we discussed in the previous section, there are four types of stock charts that are principally used in technical analysis. These are:
- line Charts
- Bar charts
- Candlestick Charts
A Line Charts is drawn by plotting only the closing price of the days (see figure given below). some investors and traders believe that the closing price is the most important price of the day and choose to ignore the open, high and low prices. the believe that by considering only the closing price , intraday swings can be ignored.
Line Charts are also use when open, high and low data points are not available. sometimes only closing data are available for certain indices thinly traded stocks and intraday prices.
Line Charts are , however , not very commonly used.
The Blue line is the price. the red lines show moving averages, an indicator that follows prices and which will be discussed later in the Article. in the lower window, the red/green vertical lines are volumes traded on that particular day.
perhaps the most popular charting method is the Bar Chart where all four prices are plotted (see in figure). the high, low and close are used to form the price plot for each period of a bar chart. the high and low are represented by the top and bottom of the vertical bar, and the close is the short horizontal line crossing the vertical bar.
On a daily chart, each bar represents the high, low and close for a particular day. weekly charts would have a bar for each week based on Friday’s close and the high and low for that week.
Bar Charts can also be displayed using the open, high, low and close. the only difference is the addition of the open price, which is displayed as a short horizontal line extending to the left of the bar. whether or not a bar chart includes the opening price depends on the data available.
if you are not interested in the opening price, bar charts are an ideal method for analyzing the close relative to the day’s high and low. on the other hand , bar charts that include the open tend to get cluttered quicker.
if you are interested in the opening price, candlestick charts probably offer a better alternative.
Originated in japan by rice traders over 300 years ago , Candlestick Charts have become quite popular in recent years. for a candlestick chart, the open, high ,low and close are all required. a daily candlestick is based on the open price, the intra- days high and low, and the close. a weekly candle stick is based on Monday’s open , the weekly high-low range, and Friday’s close.
Many Traders and investors believe that Candlestick Charts are easy to read, especially in regard to the relationship between the open and the close.
the green and red portion formed between the open and close is called the body (green body or red body). the lines above and below are called shadows and represent the high and low (see the figure).
you can equally use other color combination as well. personally, we rely mostly on Candlestick Charts together with some more indicators for our chart interpretations.