800.676.4410
Chart Types
There are three primary types of stock charts that are used to provide the historical data needed to make a decision on whether to enter or exit a transaction. The most common stock chart types are line charts, bar charts and candlestick charts, each with its own distinct look and each usable by traders, according to their needs and preferences.
Line Chart
A line chart is simply a straight line that connects the closing price of the stock for each day it trades. The closing price is considered the most significant price in the life of a stock and can indicate whether the stock is trending or stuck in a consolidation pattern. The line chart is usually preferred by long-term traders, who don't need to see the intraday machinations the stock has taken during the day. But a line chart isn't the best for short-term traders because it doesn't reveal the day's true trading flavor, nor does it show if the stock has opening or closing gaps in price.
Bar Chart
A bar chart is a simple chart that uses a slash mark, or bar, to denote each period of time, usually a day. A hash mark on the left on the bar denotes the opening price, while a hash mark on the right side denotes the closing price. The top of the bar indicates the high price the stock sold at during the day, while the bottom of the bar indicates the low price for the day. Bar charts can be packed with information, but can become difficult to read once they're jammed into a longer period of time.
Candlestick Chart
A candlestick chart offers the same information found on a bar chart, but presents it in an easy-to-read format. The Japanese began using candlesticks hundreds of years ago and Charles Dow brought the method to America at the turn of the 20th century. The candlestick is represented by a box, with a bullish day calling for an open candlestick and a bearish day calling for a filled-in candlestick. A thin line, called a wick or a shadow, extends out the top of the box to denote the high price, with another extending out the bottom to denote the low price.
If a candlestick is bullish (with an open or white body), the opening price of the stock is denoted by the bottom of the body, while the closing price is denoted by the top of the body. On the other hand, if a candlestick is bearish (with a closed or black body), the opening price of the stock is denoted by the top of the candle, while the closing price is denoted by the bottom of the body.
Candlesticks are preferred because a trader can simply glance at the price chart and can discern whether it was a bullish day or a bearish day. Candlesticks also make it easier to see trends that may be forming, which can warn traders if a reversal may be on the horizon.
Stock Charts
