It is all about the wealth you can create when it comes to the financial markets. A great share can cause drawdowns for you if you purchase it at the incorrect point. That is why you should learn about the types of stock charts present in the stock markets. The technical analysis done by most traders in the stock market is about getting the price correct. It is one of the first tools investors and traders use in the financial markets. The analysis helps to find out the trends in the stock markets by using the prices of stocks. But this happens using the various types of stock charts. Also, the analysis of the trends cannot happen when the historical charts of the shares are not present. This is because the trends are found in the charts themselves. So, it is very important to find out about the various types of charts and how they perform the right analysis to be great at technical analysis.
This article will find out more about the various types of charts and how to use them. We will also find out more about trend lines and how they can be mixed with the charts. This will help make calculations regarding the movements of the prices of the shares in the financial markets.
As we have read earlier, attempting to perform technical analysis for any share without utilizing the various types of stock charts is like attempting to develop a home without having any land. You must know how to read the charts to perform technical analysis and make trades based on that. But you may not even know what a stock chart is. We will make it simple for you. It is a graphical representation of how a share or instrument's trading volumes or prices have gone up or down. This can be shown in a lot of ways, using different types of stock charts. It is the job of the person performing the technical analysis to find out the type of chart that will make a hidden trend prominent and help take trades. Like every chart in the financial markets, stock charts have a couple of axes. These are the horizontal axis and the vertical axis. The former shows the historical periods for which a chart has been created. The latter shows the trading volume or the stock prices related to each period.
There are several types of stock charts that are utilized for technical analysis. But the most common are line charts, bar charts, and candlestick charts. The bar chart is similar in its look to a candlestick chart. All the charts that are shown are ones showing the prices of stocks. But when you move from one type of chart to the other, the nature of the input may change.
Now we know about the various types of stock charts. Let us find out how to decipher them properly. We will take a look at the trend lines and the trend lengths. These are the basic instruments that are utilized for the analysis of the technical charts. Trend lines are straight lines that connect all the bottoms or tops in the charts of stocks with each other. Trend lines are very important because trends are not so clearly defined in the stock charts. As a trader, you will see a lot of zigzag patches. This makes the analysis of stocks quite difficult. To decrease this distortion, you will have to use an external aid. When you look at a stock chart at the start, you will not be able to say whether the trend of the price is going downwards or upwards. The bottoms or tops will not clearly go lower or higher in a conclusive manner. So, you might get confused about how you are going to make the analysis in the stock charts. Utilizing trend lines, you will be able to clear through a lot of the confusion.
When wading through the various stock charts, it is vital to see the trends in the markets. But it is also important to forecast the longevity of these various trends. We have mentioned this above. The primary trends last for the longest period and bring about the highest fluctuations in the prices of stocks. Any major move in the prices of a stock for a prolonged period will come only if the trend is continuing. The minor trends, including many of the secondary ones, are not able to give a meaningful impact. It may only happen by chance sometimes. The reliability of a trend can only be forecasted by utilizing the patterns in the stock charts. A trader can begin with the overall analysis of the various trend lines. If the trend lines show that each time the prices of the shares increase to a higher level before going down, it shows that there is an uptrend. But the trend can be confirmed only when the falls are also little. Other tools to find out more about conviction and longevity in the charts are double bottoms and double tops, inverse head, shoulders, and head and shoulders.
This is one of the most typical stock charts for traders in the financial market. They look at the closing prices of a share over a certain period. All the closing price points are shown by a dot. The dots are connected by several lines to get to the graphical representation. It can be very simplistic when seen in the light of the other types of stock charts. But it assists the traders and investors in getting the trends in the movements of the prices of the instruments. But it only tracks the closing prices of stocks. So, it does not give a lot of data regarding the price movements that happen intraday.
It is very similar to a line chart. But it gives a lot more data. All the plot points in the chart are shown by a line. This line has a couple of horizontal lines that form both sides. The top half of the vertical line shows the highest price at which the share has trended during that day. The lower part shows the lowest traded price. The left extension shows the price at which the share opened. The right extension shows the closing price for that day. Apart from giving a lot of detail than the usual line chart, the bar chart also provides insight into fluctuations. If the line is lengthier, there will be more fluctuations in the trading of the shares.
These types of stock charts are very famous among traders. They give a lot of data in a very concise way. As the name shows, the movements in prices of the instruments for each day are shown in the shape of a candlestick. It is similar to a standard bar chart because it also has open, close, high, and low. But the bar charts only give data regarding fluctuations for a single day. These charts can give the data for a larger period. Also, these charts come in various colors based on the movements in prices. A candlestick that is declining is shown by a red or black body. A rising candlestick is shown by a clear or white body.
The types of stock charts give a crucial avenue to traders to perform their analysis to make the right trades in the stock markets. From experts to newbies, the patterns of the charts play a major role when predicting the movements and seeking the trends of the financial markets. They can also take trades on commodities, shares, forex, and more. The types of stock charts given in this article are the most common ones used for technical analysis.