Simply put, charts are visual representations of a security’s index or price over a certain period of time. All securities with price data over an interval of time can be employed to make a chart for a survey.
The vertical axis (y-axis) on the chart stands for the price scale. The horizontal axis (x-axis) stands for the timescale. Prices are plotted from left to right over the x-axis. The newest plot is at the furthermost right.
In order to analyze price movements, technical analysts use a wide variety of charts. Here are the main three types:
- Line Charts
- Bar Charts
- Candlestick Charts
We typically use the line chart to get the “big picture” view of price movements. We form the line chart by joining the closing prices over a defined time frame. Some traders and investors think that the closing level is more important than the open, high or low. When we pay attention only to the close, we can ignore intraday swings. These days, line charts are commonly seen together with mutual fund charts. That is because they only have closing prices and no intraday movement.
This type is probably the most popular charting method. It can show the opening, low, high, and closing price of a specific security on a specific day. That can provide a better sense of how the stock traded for the duration of the day or its day-to-day volatility.
The low, high, open, and close have to form the price plot for every single period of a bar chart. The bottom and top of the vertical bar represent the high and low. The open and close are shown on the vertical line by a horizontal dash. The dash that is located on the left side of the vertical bar illustrates the opening price on a bar chart. Conversely, the dash on the right represents the close. The main difference between a line chart and an Open, High, Low, and Close (OHLC) chart is that the latter chart can show volatility.
The third usual chart type is the Candlestick. Being similar to an OHLC chart, but also being able to present the information on a specific day’s trading in an easier and quicker-to-read format, this chart is many traders’ favorite.
They are similar to OHLC charts; they provide the same information, just not in the same format. A horizontal line which points out the open and close is used to construct the candlestick. A vertical box is what we get when we connect these two lines to make the candlestick “body.” There’s a single vertical line above the box, in the middle; it shows the high. And there’s another single vertical line in the middle, below the box; it shows the low, and it is called “shadows” or “wicks.” Another difference is the color of the body or whether it is filled or not. Usually, if the close is higher than the open, the body is left hollow (green or white) to point out an up day in that day’s price action. The body is closed if the close is lower than the open, to point out a down day.
There is a variety of charts available to us; one is not necessarily better than the other. We may use the same data to create a chart, but the way it is interpreted and presented will definitely vary. Each chart has its own advantages and disadvantages. Luckily, we can choose whichever we want or even use multiple types for analysis. It depends on our investing style and personal preferences.