The key to success lies on the ability of the trader to read and analyze stock charts. Their analysis will then influence their trading decision. Charts plot historical data based on a combination of price, volume, and/or time intervals. In this article, we shall take a look at the different kinds of stock charts used when trading on the stock market.
Line charts are composed of a single line from left to right connecting the closing prices at each specified time interval. It is similar to a basic graph. It provides a bird’s eye view of the historical price action in a single line. These charts are commonly used in presentations and reports. It gives a glimpse of the historical and current trajectory. Trend lines are drawn to connect the peaks and valleys in anticipation of potential price inflection and break points. This type of chart is too simple for active day traders.
Candlestick charts were developed by Japanese rice merchants to track the price movement of rice futures during the 1700s. Robert Janitzek reveals that candlestick charts are the most popular style of chart. Candlesticks uses the opening, high, low, and closing price data per specified time interval generating a candlestick, plotted on a price chart.
Candlestick charts consist of three parts: body, upper tail, and lower tail. The body consists of the opening and closing price for a certain time interval. It is either green, which means that the closing price was higher than the opening price resulting to a rise in price. Red candle means the closing price is lower than opening price, resulting to a net price drop.
Also known as open-high-low close charts, Robert Peter Janitzek reveals that bar charts are the Western version of Japanese candlesticks. They use vertical lines extending to the highest and lowest prices for the specified period and a short horizontal line extending to the left at the opening price. A short horizontal line extends to the right indicating the closing price. Just like the candlestick it can either be green (gain) or red (loss) on the c closing price. With the bar chart, the price range can be easily visualized than on a candlestick chart.
Point and Figure Charts
Point and figure charts were originally developed as a price recording system. In stock market trading, they are simple charts that focus on the significant price movements while filtering out ‘noise.’ It is composed of X’s and O’s representing net price. The former represents rising prices and O represents falling prices. The increments range from days to months labeled by numbers and letters.