If you’re new to trading on the stock market or have been out of the game for awhile, you’ve undoubtedly been exposed to all manner of stock charts. From line charts that show market cap or price history for companies of all sizes to the now famous bar chart, everyone is using some form of chart to help them make informed stock choices. Unfortunately, these charts can be confusing to newcomers and are often used incorrectly. In this article, we’ll share some basic knowledge about how to read stock charts so that you can develop a sound trading strategy.
What Are Stock Charts? – Stock charts are simply graphical presentations of market data as they relate to a particular stock or company. They are drawn, to a certain degree, from a single data point, such as the price of a stock. The data points can represent anything from the overall stock performance to average price growth over a given time frame. Technical traders typically use a number of stock charts to examine market data so as to pinpoint entry and exit points for each trade.
So, what is the point of having these charts? – Well, these charts are excellent analysis tools for any trader. By providing clear, concise snapshots of key performance over time periods, they are a great means of seeing how companies’ financial health and position changes. However, technical traders must be careful not to become too dependent on current analysis tools. While it is possible to evaluate a company’s past and/or future performance through the use of charts alone, nothing will ever beat having up-to-date, reliable information on hand. As such, it is important to develop stock charts that utilize technical indicators in addition to market data in order to provide a comprehensive picture of where the company stands.
First of all, it is important to remember that there is no single type of stock chart. Stock charts fall into two major categories: charting tools that rely on technical analysis platforms and those that provide simple data points. To gain the most insight into the trends a particular company is experiencing, it is often necessary to combine both types of charts. Many investors find that it is best to utilize at least three different types of technical analysis tools in order to gain a full picture of the market. There is certainly no shortage of free charting resources online and in magazines as well as newspapers, so it is certainly within the range of opportunity to develop a wide variety of stock charts based on a wide variety of sources.
One of the most common forms of stock charts utilized by investors is the bar chart. Bar charts are basically a line drawing or bar chart where the closing prices are represented by horizontal ticks, and the height of the bar is shown in terms of candlestick form. While candlestick form is often associated with more traditional technical analysis platforms, many investors have discovered the ability to make use of other types of charts in combination with bar charts. In particular, price bars can provide valuable insight into the varying prices of a stock. It is important to remember that the size of a stock does not necessarily indicate its value, so price bars can be confusing, especially when used in conjunction with other types of charts.
Another popular chart type is the line chart, also referred to as the line chart or bar chart. In these charts, the current price of the stock is represented by a series of straight lines that indicate the highest and lowest points reached so far in time. The horizontal axis in these charts represents the price of the stock, while the vertical axis indicates the point where the line first broke, indicating the closest point to the market’s historical average. These types of charts can be very useful in technical analysis when used to plot the patterns of price movements.
Finally, there is the bar chart, which is perhaps even more widely used in technical analysis than price bars. In these types of charts, a single data set is divided into several horizontal bands with each band representing a different time period within the market data. For instance, one of these charts could plot the opening and closing prices of a stock over one month and indicate the range of prices for that period. This allows the trader to better understand price movements by looking at only one indicator rather than the multiple ones created by price bars. While these charts are less common in technical analysis, they are still used frequently in order entry orders.
To further improve your understanding of technical analysis and its relation to stock charts, it would be helpful to take a look at an online trading course or a physical bookstore. There are plenty of resources available that offer in-depth tutorials on how to use technical analysis tools to trade effectively. If you prefer to work with charts in real-time, there are some excellent charting packages that provide a wide range of charting applications. Either way, learning how to interpret stock charts will help you become a better trader.