Choosing the Right Stock Charts for your trading is KEY. Read the Pro’s and Cons of Bar, Candlestick, Market Profile, Point & Figure & OHLC Charts
“There is more than one way to skin a cat” goes the old saying, quite why someone would want to skin a cat is beyond me. Like the skinning of cats, there is more than one way to picture the supply and demand situation of the stock market.
8 Types of Stock Chart
- Line Stock Chart
- High Low Close Bar Stock Chart (HLC)
- Open High Low Close Bar Stock Chart (OHLC)
- Japanese Candlestick Charts
- Price at Volume Stock Chart
- EquiVolume Stock Charts
- Point and Figure (P&F) Charts
- Market Profile Stock Charts
Stock charts come in many shapes and sizes. From the differences in the bars to the different concepts applied to the chart itself. Here you will find a reference guide to the many types of chart available with an overview of their potential uses.
1. Line Stock Chart
This is one of the most basic charts, probably giving the least amount of information. The line in the top pane is drawn using the close price for each unit of time. So if this is a daily line chart, the close price for the day is used. If this is a 5-minute chart, then the close price for every 5 minutes of trading is used.
The Positives of Line Stock Charts
A very simple view of the price movement. Good to use when comparing the performance of many stocks on the same chart.
The Negatives of Line Stock Charts
Does not show the Price Open / High / Low for the trading period. The trading range for the day is important in price based decision making as it indicates a bullish or bearish momentum.
2. High Low Close Bar Stock Chart (HLC)
Using bars is a step up from the line chart as is allows us to plot additional useful data on the chart. Here we have each bar representing a trading period with the price High, Low and Close represented. Refer to the diagram.
The Positives of High Low Close Bar Charts
More information is available, showing the range of the days trading, meaning did the stock price close near it’s high (bullish) or near it’s low (bearish).
The Negatives of High Low Close Bar Charts
No opening price is reflected in this chart. The opening price is important as it allows us to immediately see if the price gapped up or down on open, and also where the closing price is in relation to the opening price.
Watch our Stock Chart Types Comparison Video Walkthrough
3. Open High Low Close Bar Stock Chart (OHLC)
The complete bar chart. The chart of choice for those who like to use bar charts. Here we see the range of the day’s trading including the open price and the close price.
The Positives of Open High Low Close Bar Charts
We can see instantly if the trading period closed higher or lower than the open. We can also see the length of the bar, which shows us the volatility or the strength of the trend.
The Negatives of Open High Low Close Bar Charts
There are few downsides to this chart type and it is used by many investors and traders. Most chart packages also allow you to color the up days green and the down days red. For those who prefer even more information in the price chart, the following charts can also be used.
4. Japanese Candlestick Charts
Used widely in Japan and gaining a strong foothold in the rest of the world the Japanese Candlestick chart gives an excellent insight into current and future price movement. Named Candlesticks because they look like candlesticks with a wick and a main body.
The Positives of Japanese Candlestick Charts
Gives an excellent view of the Open, High, Low and close of the price. Pictorially illuminating and easy to see trends. There is a full reference below of 1 bar to 4 bar patterns which help us to make judgments on the future direction of price. They connect the psychology with the price pattern.
The Negatives of Japanese Candlestick Charts
Although Candlesticks have many advantages, they can seem like information overload to the beginner. There are also many Candlestick patterns to learn.
Further Reading on Japanese Candlesticks.
- Candlestick Charts
- Bullish Candlestick Patterns
- Learn Candlesticks in the Liberated Stock Trader PRO Training
Stock Charts Using Volume
The use of volume in technical analysis is important as volume allows us an insight into the supply and demand situation. The following charts incorporate volume into the price window to provide additional information.
5. Price at Volume Stock Chart
The price at volume chart is an exciting new development, as instead of showing volume for a certain time period, it shows us the volume of trades at a specific price level.
This enables us to see at what price level most of the market participants believe the stock is fairly priced.
The Positives of the Price at Volume Chart
Innovative and intuitive, this method of charting combined with standard volume bars can enable you to see market psychology both in time and price. It is also easy to see volume increasing as price rises, this is a very bullish sign.
The Negatives of the Price at Volume Chart
Not all stock charting packages offer this type of indicator
EquiVolume Charts attempt to provide the solution of Volume at Price in a different way. Instead of plotting volume in separate bars, it is in fact incorporated into the price bars themselves.
The wider the price bar, the more shares where traded during that period.
The Positives of Equivolume Stock Charts
Visually impressive and extremely easy to interpret.
The Negatives of Equivolume Stock Charts
This type of chart can distort the timeline running across the bottom of the chart. This makes drawing accurate trend lines more challenging. Few Stock Charting service providers offer EquiVolume. I would not recommend using EquVolume as a tool.
7. Point and Figure (P&F) Charts
There are a few other types of charts that you probably have never heard of before. They are however quite useful and you would be required to learn them if you wanted to become a Certified Technical Analyst.
Point & Figure Charts are very unusual as they feature no timeline along the bottom horizontal axis. The Chart is made up only of price swings. The vertical price bar is arithmetic and shows only units of price.
A “O” is plotted if the price moves down a whole price unit (for example 50 cents). Then when the price changes direction and starts to move upwards an “X” is marked in each box. This filters out smaller price moves and enables us to focus on trend quality.
Trend lines are always plotted either horizontally or at 45-degree angles.
The Positives of Point & Figure Stock Charts
An excellent tool for doing price target calculations. Simple to learn and interpret, few price patterns to learn.
The Negatives of Point & Figure Stock Charts
Learning this type of charting can be easiest when performing the charting by hand. That means you marking the “X” and “O” on a piece of paper. This can also be very time-consuming. Few services offer Point and Figure Charts, however, StockCharts.com offer a free Point and Figure Charting Service that is well worth investigating.
Developed in the 1980’s by Chicago Board Of Trade Pitt Trader J. Peter Stiedlmayer. The letters on the chart show time units. “A” represents the first 30 minutes of trading, “B” represents the second 30 minutes of trading.
The point of control is the area (price range) at which the most trades occur during the day.
The value areas are the price range at which 70% of the action happens. When the price is above and below the value areas this represents a possible ideal buying or selling point.
The Positives of Market Profile Stock Charts
People who use market profile chart become evangelists to the cause. They believe it offers unique insights into buy and sell opportunities. Can be a good option is you are a quick-fire day trader.
The Negatives of Market Profile Stock Charts
Can require quite an effort in order to learn how to use them, and very few stock chart services offer this type of charting.
Stock Charts Summary
Some people refer to investing in the stock market as gambling. I do not see it this way. With the vast array of technical and fundamental data available you have a wealth of information at your fingertips. Knowing how to use it is key.
As you can see there are many types of charts, the ones I would recommend are OHLC Bar, Candlestick Charts and Price at Volume Charts.
However, the choice is yours.