“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 comprehension. Like the skinning of cats, there is more than one way to picture the supply and demand situation of the stock market.
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 charts available with an overview of their potential uses.
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.
It is a very simple view of the price movement. Good to use when comparing many stocks on the same chart.
It 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.
High Low Close Bar 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.
More information is available, showing the range of the day’s trading.
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.
Open High Low Close Bar Chart (OHLC)
This is the complete bar chart, the chart of choice for those who like to see the full information. Here we see the range of the day’s trading, including the opening price, the high and low for the day, and the close price.
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.
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.
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 movements. They are named candlesticks because they look like candlesticks with a wick and the main body. This is essentially the same as an OHLC chart, but is it a little bit more graphical and easier to recognize short term patterns.
Candlesticks give an excellent view of the Open, High, Low, and close of price. They are pictorially illuminating and easy to see trends. There is a full reference of 1 bar to 4 bar patterns, which help us to make judgments on the future direction of price. They connect psychology with the price pattern.
Although Candlesticks have many advantages, they can seem like information overload to the beginner as there are so many candlestick patterns to learn.