Stock charting basics

 

What are charts?

A stock chart is simply a graphical representation of the stocks price or volume have changed over a set period of time. This relationship can be presented in a number of ways, through the use of different types of charts. It is your job, as a technical analyst, to identify the type that will bring out a hidden trend most effectively.

Why stock charts?

A technical chart is nothing but a portrait of the struggle between buyers and sellers. So, if you look at a chart—and bring it down to something emotional, because that’s what trading is, an emotional event from a bunch of traders/investors. Basic charting knowledge combined with other stock indicators can immensely improve your trading skills. Chart patterns inform you about trading sentiments of other investors.

There are four main charts:

 

  1. LINE CHART:

This is one of the most basic charts, probably giving the least amount of information.   Line charts compile the closing prices of a stock and ignores the open, high, or low points of each trading day.   If this is a daily chart, then the close price for a day of trading is used. Line charts are more suited for the longer-term trader .

2. BAR CHART:

Bar charts are popular charts used by traders. The bars formed by using the open, high, low, and close prices of that particular day .  Sometimes they are called OHLC bar charts (Open, High, Low, Close).  A second type of bar chart is called HLC.  These charts do not factor in opening prices.  If a trader uses a bar chart, they should use OHLC charts to see a more complete and accurate picture of the action.

  •     Example of a bar and bar chart

 

 

  1. Chart Identification and Time frame
  2.  Price and price changes
  3. Time Period – In this case, daily chart is used. In this chart you can see the price movement from October to July 2018.( if you add a technical indicator to the chart normally it appears in the  time period section as well.
  4. Each bar represents 1 day on a daily chart,can be used for any time frames.

 

3.  CANDLESTICK CHART:

Candlesticks are a visual form of charting prices. Candlestick trading means knowing the psychology of the markets through the candlesticks shapes and colors. Most technical analysts use candlestick stock charts to look for trends,reversals, or locate support and resistance points. Although Candlesticks have many advantages, they can seem like information overload to the beginner.

$TWTR Daily candlestick chart

 

 

  1. Chart Identification and Time frame
  2.  Price and price changes
  3. Time Period – In this case, daily chart is used. In this chart you can see the price movement from October to July 2018.( if you add a technical indicator to the chart normally it appears in the  time period section as well)
  4. Each candlestick bar represents 1 day on a daily chart,can be used for any time frames.

4. POINT AND FIGURE:

Point and figure chart is concerned only with price, not time or volume. The chart uses an X to mark increases in price and an O to mark lower prices. With this approach it is easier to detect trends and reversals. However, since time is not used as an input, P&Fs gives little guidance on how long it will take for profit objectives to be met. I think closing price trumps all else, but intraday price action matters as well.