What is Chart
Charts are graphical representation of price movements. It shows the change in price of the instrument (i.e. stock or indices) in a continued structural manner by which we can easily understand how the price is changing with the time interval. It makes easier to analyze the price fluctuations. Hence, charts are known as the heart of technical analysis and price action.
Types of Charts in Technical Analysis
There are various types of charts available in the display option of charts section in most of the popular brokers trading platform you may use like Zerodha, Upstox etc. in Indian Stock Market.
Mostly two types of charts are widely used nowadays; those are Line Chart and Candlestick Chart. Another type of chart that traders use is Bar Chart and a popular type of chart that traders use for refined information is Heikin Ashi Candle Chart. Here we will briefly discuss about different types of charts used by traders in stock market and their basic features.
Line chart
Line chart is formed by connecting data points, which are the closing prices of the particular time frame, with lines. Hence this chart shows only the closing prices and don’t describe the price fluctuations like the Open, High, Low etc. This is a plus point of this chart as it reduces the noise and gives a clear picture of the price movement. In other way we can also consider it as a negative point in case we need a detail view of the fluctuations in the price. In that case it is better to use Candlestick chart pattern.
Line charts are useful to analyse long term charts like 1 year, 3 years or 5 years chart, because in the long term chart we don’t focus on short term fluctuations, rather we focus on the overall trend of the price and in line chart we can easily identify the trend.
Bar chart
Bar Chart is formed by vertical bars or lines with small ticks which shows the price movements of the stock or instrument of a particular time interval (like 1 hour, 1 day, 1 week etc). Bar chart is a combination of vertical bars with two small ticks.
If we select 1 Day time frame then each bar will show price movement of one day.
The top of the bar shows the high price of the instrument (stock or indices) for that particular time interval (here we have selected 1 Day).
The bottom of the bar shows the low price of the instrument (stock or indices) for that particular time interval (here we have selected 1 Day).
The small tick mark towards left side shows the opening price.
The small tick mark towards right side shows the closing price.
If we select Colored Bar Chart then it will show bars of two colors,
The Red Color bar shows downward or bearish move of price.
And the Green Color bar shows upward or bullish move of price.
Candlestick Chart
That is also known as Japanese Candlestick Chart is combination of Candle like body with upper and lower wicks or shadows which defines the detailed movement of price during a particular time period.
We can select various time period or time frame candles like 1 minute to 5 minutes, 10 min, 15 min, 30 min, 1 hour, 1 day, 1 week etc. For example : if we select 1 day candle then each candle will show price movement of 1 day.
There are candles of two colors, it could be black & white or could be Red & Green. Black or Red candle shows downward or bearish movement of price and white or green candle shows upward or bullish movement of price.
In case of Black or Red candle the upper end of the body is the opening price and lower end of the body is closing price. This shows the stock or instrument opened at higher price and closed at a lower price, therefore it is a bearish candle.
In opposite, the lower end of the body of the White or Green candle is the opening price and upper end of the body is closing price. This shows the stock or instrument opened at a lower price and closed at a higher price, therefore it is a bullish candle.
The end of the upper wick or shadow of the candle shows the highest price and end of the lower wick or shadow of the candle is the lowest price of the stock or instrument during that time frame.
There are various types of Candles like Marubozu, Hammer, Hanging Man, Doji and Candlestick Chart Patterns like Morning Star, Evening Star, Flag, Head & Shoulders etc. according to their shape and structure which indicates certain types of price action. Analysts and traders analyses these patterns based on the concepts of technical analysis to predict future price movement. Candlestick Chart makes analyzing price movements easier, therefore it is the most popular and widely used chart type by the traders. (read more about different types of Candles & Candlestick Chart Patterns)
Heikin Ashi Candle Chart
Heikin Ashi Candle Chart is a type of Candlestick Chart in which each candles shows an average of price change. The opening shows the average of previous candle’s open and close, for which it opens at the middle position of the previous candle and closing shows the average of open, close, high & low of the current candle.
In upward trend all the candles are generally green and in lower trend all are red, so it gives a clear picture if the price is going up or down. It reduces the noise and gives refined information which makes easier to identify the trend and trend reversal.
Conclusion
Chart is the most important tool of technical analysis. Analysts use various types of indicators, oscillators and tools in the chart for better analysis as per their trading technique and technical analysis method (read more). Investors and Fundamental analysts also use charts to check long term price movement and trend analysis.
In this chapter we have tried to present the basic knowledge in a short and simple manner. You can check our other articles for more informative & educational contents. If you like our contents please share with your friends.
Disclaimer – Investing and trading in stock market is subject to market risk. We have to learn all the risk factors before making investment decisions. This article is only for basic knowledge about stock market investing for educational purposes only and not any type of recommendation. In case you need any professional advice please consult your financial advisor.
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