As we have mentioned before, stock charts are an essential tool for technical analysis. They can tell you all the immediately relevant necessary information when it comes to a stock or index. However, not all charts display all the information you will need. There are various types of charts that you can look into, that tell you different information and have different uses. Your style of trading will strongly influence the kind of chart you will choose to use for the long-term. Some are more popular than others, as is to be expected. Here, we plan to introduce you to the most essential of these.
Line stock chart
A line chart is the most basic type of stock chart you can come across overall. It consists of the average closing prices of a stock over a certain period of time. Nothing more, nothing less. The simplicity of this chart can be quite attractive to people just starting off trading. It can also be quite useful for a cursory quick glance at the chart when in a rush as well.
Bar stock chart
Bar charts are the next level of stock charts that you can look for. It gives traders just a tad more information, without overwhelming them. It is not quite the traditional bar chart you would have come to expect. Instead, it can offer the high and low prices for a stock at certain periods of time. Thus, it offers traders a more accurate picture of how the market actually is. There is never anyone single price for a stock over all markets. People tend to haggle with each other, so you cannot expect prices to stay at one particular place. If it was so, the prices of stocks would never change. However, this also means that following this type of chart tends to be slightly harder.
The candlestick chart is by far the most popular type of chart for traders out there. When you think of stock charts, it is the image of this type of chart which probably comes to mind. It combines both the ease of reading of line charts, with the accuracy of bar charts. It includes the low and high prices of the stock, much like the bar chart. However, there is a difference. It has a “real body”, which displays the relative performance of a chart. If a price has lowered from the previous point, it usually displays red, and green if it has gone up. However, it can also optionally include a moving average (MA), which displays the average prices over time. The combination makes it relatively easy to comprehend stock prices.
Point and Figure chart
This type of chart displays the relative performance of a chart over time in terms of percentage. IT removes all of the noise and gives you quick information on how a stock is doing. To ensure it can inform people of this, these charts usually focus on the performance of stocks over long time scales, usually months. The minute to minute changes are of no matter. Therefore, these types of charts are more useful for long-term strategies.
It displays a certain number of symbols drawn vertically, whose relative number informs people of their relative movements. The Xs represent a rise in prices, while the Os represent a drop in prices.
This type of stock chart (OHLC) used to be all the rage in the 80s before candlestick charts practically took over. Every day, it would display four major data points regarding a stock once the market closed. It shows a vertical line, with its length representing the full price range of a particular stock over the day. This is how it displays the high and low prices of an asset over time. It then displays notches on the left and right side of this line. The notch on the left indicates the opening price, whereas the one on the right indicates the closing price. So, with this one little line, it can inform traders all they need to know about a stock’s performance over a day. This type of chart is, therefore, more useful for slightly longer-term trading. This could be swing or day trading.
However, it is hard to glean what the average price of the stock is over this particular time period. It only tells where the highest and lowest points were. Not the average.