What are Technical Stock Charts &
their Types?
Technical
analysis is one of the most important aspects of the stock market. An entry at the
wrong price in a stock that is performing well can lead to heavy losses. To
know the right stock along with entry and exit price, you must learn technical
analysis. Technical analysis is done on a stock chart where price and volume
data are placed.
Technical
analysis involves the reading of historical data and using different types of
indicators to predict the future price movement of a stock. To become
successful in technical analysis, you must understand what a chart is and how
to read them.
What is Stock Chart?
A
stock chart is a graphical representation of price and volume over a period.
The X-axis on the graphical chart is represented by time and Y-axis shows the
price movement. The time frame on the chart can vary depending on the study.
Different Types of Charts
There
are many types of charts that technical analysts use while studying a stock.
However, some of the commonly used charts are as follows;
· Line
Charts
A line
chart is a most commonly used chart. This chart represents the closing price of
a stock over a specific period. The closing price on the chart is represented
using a dot. The graphical representation is done by connecting the dots of
different days by a line. Line charts are very helpful in understanding the
trend and price movement of a stock. However, the line chart does not give
detailed information about the intraday movement in the share price.
· Bar
Charts
A bar
chart is very similar to a line chart but it offers much more information. The
bar chart has no dots but it has a vertical line with two horizontal lines
protruding out from each side of the chart. The top of the vertical line represents
the highest price in a day while the bottom of the vertical line is the lowest
price of the stock during the day. The horizontal line towards the left side is
the opening price of the stock and the horizontal line towards the right is the
closing price of the stock. The bar chart helps in understanding the intraday
movement of stocks.
· Candlestick
Charts
Candlestick
charts are one of the most widely used charts. They offer the same information
as the bar chart but in a better way. A candlestick chart comprises of
rectangular boxes with lines coming out from both sides. The upper line
represents the high price of the stock during the day and the line at the lower
end is the lowest price of the stock during the day. The rectangular block is
called the body. Using candlestick charts you can very well understand the
intraday volatility of the stocks.
A
candlestick chart has a light and dark shade. When the closing price is higher
than the opening price, the candle is of a dark shade (black). And when the
opening price is higher than the closing price, the candle is of a lighter
shade (white). If you notice a higher variation in the colour of candles, it
means that the stock is more volatile.
· Point
and Figure Charts
Before
the introduction of computers for stock analysis, point and figure charts were
extensively used. These days hardly a few people use it. The reason why it is
not popular is that it is difficult to understand and complex. A point and
figure chart’s main characteristic is to display the volatility in the stock
price over a period of time.
The
above mentioned are some of the different types of charts. If you want to learn
technical analysis you may get in touch with Indira Securities. You may also
consider opening a demat account with us. We offer a wide range of broking
services at nominal rates.