Stock Charts - An Introduction
When looking at stock charts in the past, have you ever wondered what the heck those lines and shapes were (or are)? .....If so, you've come to the right place.
Stock charts are used to show a stocks' past performance and to help predict its future path by using technical indicators, different theories and analyzing different time frames. This technique is called "Technical Analysis".
There are different types of charts used for Technical Analysis, and each type can be used for different reasons depending on your knowledge of each one.
In this section I will briefly go over some of the most common types of stock market charts.
Note: You can click on each image for a larger view, and follow my links to further descriptions and examples.
A Line chart plots the closing price of a stock only.
Find out more about Line Charts here: Line Chart
A Bar Chart is used to plot the closing price; the price range; and
sometimes the opening price; of a stock over a specified time frame.
Find out more about Bar Charts here: Bar Chart
This is an example of a Candlestick Chart. This type is a form of Japanese charting that started many years ago. Understanding candlestick charting involves taking an in depth look.
Find out more information on Candlestick Charts here: Candlestick Chart
Point and Figure Chart
Point and Figure Chart courtesy of StockCharts.com
Point and Figure charts consist of vertical columns showing a rise in prices by displaying black "X's" and showing a decline in prices by showing red "O's".
You can find out more about Point and Figure Charts here: Point and Figure Charts
Some traders use basic charts during their technical analysis and trade using support and resistance levels. Others use one, or a combination of technical indicators and different types of stock charts before placing any trades.
I find that the more I look at the same type of chart, the more I can recognize patterns that I have seen before. This is very helpful when trying to figure out when a good time to buy or sell is.
Over the years I have made a habit of printing out stock charts with patterns that I thought were going to happen in the future, based on patterns that I have seen in the past. I place marks and lines on the charts to show where I think a reversal or a continuing trend will occur.
After a few months go by, I go through my stock of charts, and check where the stocks wound up going. You wouldn't believe how many of them went exactly where the charts showed they would go, based on what I had written down. And yes, I always say "I should have listened to myself". You know the old saying: I "Would of, Could of and Should of"?
You don't have to remind me though, because my wife and children are always doing that. They know because I always start out telling them stories with "You're not going to believe this......" and they say, "What didn't you buy this time", or "What happened right after you sold......".
It doesn't matter which chart you choose or like better than the other, the key is to learn about the one that fits your trading style and needs, and to study it as much as possible.