Technical analysts use stock charts to analyze their trades. These charts are used to analyze what the trend of the stock is and which are the support and resistance levels where the stock should be bought or sold.
What is a stock chart?
A stock chart is a graphical representation of the price of the stock and how it has changed with time. The chart can be plotted in various ways and you need to use the one that you can read the best.
There is two axis in the stock chart, the horizontal axis, and the vertical axis. The horizontal axis represents the time period for the chart and the vertical axis represents what the trading volume is that corresponds to the time period.
Technical analysis uses many kinds of charts; however, the popular ones used are the line chart, bar chart, candlestick charts and the point and figure charts. The nature of how the price is inputted varies for different charts as well as how the data is represented is different in each chart.
This is the simple way to plot stock chart. It shows how the price has changed over time. The chart uses the closing price of the stock and depicts it as a point. Once there are series of this points they are joined to form a straight line. The chart can be plotted for any time frame. It is easy to use but it does not show a lot of information that is needed to trade using technical analysis.
This is an advanced version as compared to the line chart. The bar chart marks the open, high low and close price of the stock. The bar chart is not continued like the line chart. The advantage of the bar chart is that it lets the trader see the pattern formation easily. Also, the data that is plotted on the bar chart is more than that on the line chart.Since the bar charts are not colored this is why it loses out to candlestick charts which use different colors for bearish and bullish candles.
Candlestick charts trace their origin to Japan where it was first used some 30 years before. This is the most popular chart that is used by traders. The candlestick chart also plots the open, high, low and close of the candle but shades the bearish and the bullish candle with different colors. This makes it easier to visualize what is happening.
Point and figure chart
These charts only show some significant price information like the X’s and the O’s without giving any consideration to time. The price is placed on the horizontal axis and the time unit is determined as per when the trend changes.