by admin » Sun Jan 13, 2013 1:49 am
What is a chart ?
Charts are the working tools of technical analysts. They use charts to plot the
price movements of a stock over specific time frames. It's a graphical method
of showing where stock prices have been in the past.
A chart gives us a complete picture of a stock's price history over a period of
an hour, day, week, month or many years. It has an x-axis (horizontal) and a
y-axis (vertical). Typically, the x-axis represents time; the y-axis represents
price. By plotting a stock's price over a period of time, we end up with a
pictorial representation of any stock's trading history.
A chart can also depict the history of the volume of trading in a stock. That is,
a chart can illustrate the number of shares that change hands over a certain
time period.
Types of price charts:
1. Line charts
"Line charts" are formed by connecting the closing prices of a specific stock or
market over a given period of time. Line chart is particularly useful for
providing a clear visual illustration of the trend of a stock's price or a market's
movement. It is an extremely valuable analytical tool which has been used by
traders for past many years.
2. Bar chart
Bar chart is the most popular method traders use to see price action in a stock
over a given period of time. Such visual representation of price activity helps
in spotting trends and patterns.
Although daily bar charts are best known, bar charts can be created for any
time period - weekly and monthly, for example. A bar shows the high price for
the period at the top and the lowest price at the bottom of the bar. Small lines
on either side of the vertical bar serve to mark the opening and closing prices.
The opening price is marked by a small tick to the left of the bar; the closing
price is shown by a similar tick to the right of the bar. Many investors work
with bar charts created over a matter of minutes during a day's trading.
3. Candlesticks Formation
Candlestick charts provide visual insight to current market psychology. A
candlestick displays the open, high, low, and closing prices in a format similar
to a modern-day bar-chart, but in a manner that accentuates the relationship
between the opening and closing prices. Candlesticks don’t involve any
calculations. Each candlestick represents one period (e.g., day) of data. The
figure given below displays the elements of a candle.
A candlestick chart can be created using the data of high, low, open and
closing prices for each time period that you want to display. The hollow or
filled portion of the candlestick is called "the body" (also referred to as "the
real body"). The long thin lines above and below the body represent the
high/low range and are called "shadows" (also referred to as "wicks" and
"tails"). The high is marked by the top of the upper shadow and the low by the
bottom of the lower shadow.
If the stock closes higher than its opening
price
, a hollow candlestick is drawn with the bottom of the body representing
the opening price and the top of the body representing the closing price.
If
the stock closes lower than its opening price
, a filled candlestick is drawn
with the top of the body representing the opening price and the bottom of the
body representing the closing price.
Each candlestick provides an easy-to-decipher picture of price action.
Immediately a trader can see and compare the relationship between the open
and close as well as the high and low. The relationship between the open and
close is considered vital information and forms the essence of
candlesticks. Hollow candlesticks, where the close is greater than the open ,
indicate buying pressure. Filled candlesticks, where the close is less than the
open, indicate selling pressure. Thus, compared to traditional bar charts, many
traders consider candlestick charts more visually appealing and easier to
interpret.
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