Understanding the Basics: A Guide to Different Types of Stock Charts

What is a Stock Chart?

• A chart is a graphical representation of price and volume movements of a stock over a certain period of time. In the graphical chart, the X-axis represents the time

• period and the Y-axis represents the price movement. The time period can vary from intra-day to even a few months or more.

• A graphical representation of the historical changes in a stock's price or trading volume. Different types of charts can be used to display this relationship in a variety of ways. As a technical analyst, it is your responsibility to choose which type will most effectively reveal a hidden pattern.

• The vertical axis and the horizontal axis are present in all charts, including stock charts. The historical timeframes that have been used to create a technical chart are represented by the horizontal axis. The stock price or trading volume for each time is shown on the vertical axis.

Types of Charts

Technical analysts use a variety of charts based on the information they seek. However, there are three types of charts that are most commonly used. They are:

• Line charts

• Bar charts

• Candlestick charts

• Heikin Ashi Chart

• Renko Chart

• Point & Figure Chart

Line charts

• Line charts are the simplest form of charts depicting price changes over an interval of time. Usually, only the closing price is graphed, depicted by a single point. The series of these points constitutes a line - hence, the name. However, intraday price changes can also be plotted, either by plotting each trade, or by selecting the last price of a given interval, such as an hour or 15 minutes. Because line graphs are simple, it is easier to compare the prices of multiple securities or indexes on the same graph.

A line chart is a straight line that connects a series of prices of a financial asset.

Usage Of Line Chart

• Line charts are ideal for beginner traders to use due to their simplicity. They help to teach basic chart reading skills before learning more advanced techniques, such as reading Japanese candlestick patterns or learning the basics of point and figure charts. Volume and moving averages can easily be applied to a line chart as traders continue their learning journey.

• Additionally line charts may not provide enough price information for some traders to monitor their trading strategies. Some strategies require prices derived from the open, high, and low. For example, a trader may buy a stock if it closes above the high price of the previous 20 days.

Bar chart

• A bar chart is a collection of price bars, each showing the given stock’s real-time price movements. Each bar has a vertical line that shows the highest price the stock reached during the stock period and the lowest price the stock reached during the pre-set time period.

• The open stock price is typically marked by a small horizontal line on the left of the vertical line, and the close price is marked by a small horizontal line on the right of the vertical bars.

• A bar chart is quite similar to a line chart. However, it offers much more information. Instead of a dot, each plot point in the graph is represented by a vertical line. This line has two horizontal lines extending from both the sides.

• Bar charts are one of the most popular chart types to analyze financial assets. Like other chart types, they provide a lot of information traders and investors can use when analyzing the market

• The top part of the vertical line represents the highest price at which the stock had traded during the day.

• Similarly, the lower part represents the lowest traded price. The left extension represents the price at which the stock opened while the right extension represents the closing price for the day.

• In addition to offering greater detail than a line chart, the bar chart also gives insight on volatility. If the line is longer, it means that there was greater volatility in the trading of the stock.

Candlestick chart

• A candlestick chart is a financial chart that typically shows price movements of currency, securities, or derivatives. It looks like a candlestick with a vertical rectangle and a wick at the top and bottom. The top and bottom of the candlestick show open and closed prices. The top of the wick shows the high price, and the bottom of the wick shows the low price.

• A candlestick chart includes the open, close, high and low price of a stock over a specific time frame

• Just like a bar chart, a daily candlestick shows the market's open, high, low, and close price for the day. The candlestick has a wide part, which is called the "real body."

• This real body represents the price range between the open and close of that day's trading. When the real body is filled in or black, it means the close was lower than the open. If the real body is empty, it means the close was higher than the open.

• A falling candlestick is generally represented by a black or red body while a rising candlestick is represented by a white or clear body.

Heikin Ashi Chart

• Heikin Ashi is another type of popular technical chart that originated in Japan is quite similar to candlestick chart. With this chart, you can visualise the uptrend and downtrend quite clearly. When there are continuous green HA handles without lower shadow, it’s a reflection of a strong trend.

• On the other hand, when there are continuous red handles without upper shadow, it reflects a solid downtrend. As the HA bars are averaged, there’s no exact open and close prices for a particular period.

• A Heikin Ashi chart shows you the direction of a trend through its color-coded candles.

• A green candle is telling you that trend is UP. A red candle is telling you that the trend is DOWN.

Understanding Heikin-Ashi Candlesticks

• Heikin-Ashi Candlesticks are very similar to normal candlesticks, but differ in some key features.

• A Heikin-Ashi candlestick is hollow when the HA-Close is above the HA-Open; conversely, Heikin-Ashi candlesticks are filled when the HA-Close is below the HA-Open.

• This is similar to normal candlesticks, which are filled when the close is below the open and hollow when the close is above the open.

Renko chart

• A Japanese invention, Renko charts, one of the major types of charts in technical analysis, focus only on price changes and use price bricks to represent a fixed price move.

• Renko charts are based on bricks with a fixed value that filters out smaller price movements. A regular bar, line or candlestick chart has a uniform date axis with equally spaced days, weeks and months. This is because there is one data point per day or week. Renko charts ignore the time aspect and only focus on price changes. If the brick value is set at 10 points, a move of 10 points or more is required to draw another brick. Price movements less than 10 points would be ignored and the Renko chart would remain unchanged.

• A Renko chart technical analysis is pretty effective in identifying support and resistance levels. You get a trading signal when there is a change in the direction of trend and the bricks alternate colours.

Point & Figure Chart

• A point-and-figure chart plots price movements for stocks, bonds, commodities, or futures without taking into consideration the passage of time.

• A Point and Figure (P&F) chart is made up of multiple columns of X’s that represent increases in a security’s price and O’s that represent decreases in price. A column of X’s is always followed by a column of O’s, and vice-versa. The chart is composed of multiple boxes, with each box equal to a certain price level. The box is filled with an X if price increases to that level. The box is filled with an O if price decreases to that level.

• This chart for technical analysis is easy to plot and the patterns are easy to follow. A disciplined method of identifying current and emerging trends, Point & Figure Chart can help you in easy determination of entry and exit points.