Graph or chart is a graphical representation of data. They are often used for the large quantity of data which is easy to understand. It is often used in varieties of field and situations.
As far as stock market charts are concerned they are mostly used to represent series of prices over time. They show share price movement for a day, or 5 days, one month or one year. Usually, the price is denoted on Y axis and time on the X axis.
Though there are many types of charts, generally used charts by traders and investors are of four types.
- Line charts
They are one of the basic types of a chart which is simple and easy to understand. They depict only the price movement (closing price) over a set of the time period. The line is formed by connecting closing prices of each day. Since they are simple they do not provide any detail information which can be useful for an intraday trader. Hence they are not of much use to a day trader. Reading the charts one can get information on trends, which way the market is moving.
- Bar charts
They give more information than line chart. One can get information regarding opening price, closing price, highest and lowest price in a period (day, week or month). They are made up of series of vertical lines depicting price range for a given period. A horizontal dash on each side depicting opening and closing price. Dash on left side depicts opening price and on right side depicts closing price.
- Candlestick Charts
These charts are used more by day traders. These charts give more information than line and bar chart and hence are more popular with traders and investors. They are the more advanced form of the bar chart, in a way that colored vertical lines show whether the share ended higher or lower. The width of the bar shows the difference between opening and closing prices. In other words, if the line is thin it indicates there is not much difference between opening and closing and if broad then there is a significant difference between opening and closing.
Candlestick chart conveys information regarding highest/lowest price of the day, opening/closing price, the filled color of the body indicates higher/lower closing, and width indicates the difference between opening/closing.
- Point and Figure Charts
These charts are mostly used by long term investors for determining entry and exit points. They are not too popular. The closing price is given more importance. It shows the larger picture and is not much affected by minor ups and downs. These charts are made up of series of X’s and O’s. Charting X’s shows upward price trends and O’s show downward price trends. They are marked in a box. Each box represents price scale. These price scales adjust depending upon the price of the share. Support and resistance levels are the two important principles for further study.
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