Types Of Charts In Stock Market?

Timing is all about technical analysis! Even if a stock is performing well, if you make a trade at the wrong price, you could lose a lot of money.

To make the right decisions in the stock market, traders use various tools. One of the most important tools is the stock chart.  

How charts are used in the stock market

depends on three factors. These are:

1. the stock price already reflects all relevant market information
2. Trends tend to drive stock prices
3. Historically, things tend to repeat themselves

It can be quite valuable to study patterns in stock prices so that you can make better trading decisions. Stock charts can be extremely useful for trading.

What is a Stock Chart?

Charts are graphical representations of price and volume movements of a stock over a specified period of time. A graphical chart has an X-axis representing time and a Y-axis representing price movement. The timeframe may be as short as a day or as long as several months.

Types of Charts

Depending on the information they seek, technical analysts use a variety of charts. The three most commonly used charts are as follows. In this order:

• Line charts

The most common chart type is the line chart. They show a stock's closing price over a specified period of time.

Each closing price point is shown as a dot. To make the graph, lines connect all the dots.

Line charts can help traders spot trends in price movement even though they are considered simple (compared to other chart types). Due to its focus on closing prices, it does not provide much information regarding intraday price movements.

A time period is represented by the X-axis in the above chart, while the price is represented by the Y-axis.

• Bar charts

are similar to line charts. However, they provide much more information. In the graph, each plot point is represented by a vertical line instead of a dot. Both ends of this line are horizontal.

It is represented as follows:

A vertical line represents the highest price at which the stock traded during the day at the top of the line.

It also shows the lowest traded price at the bottom of the line. On the left, the stock's opening price appears, while on the right, the stock's closing price.

Bar charts not only provide greater detail than line charts, but also provide insight into volatility. It means the stock traded with more volatility if the line is longer.

• Candlestick charts

have become very popular among technical analysts. In a very precise manner, they provide a great deal of information. Candlesticks are used as a representation of the price movements for each day.

Because it represents the four data points of high, low, open, and close, it is similar to a bar chart.

In contrast to bar charts, candlestick charts can provide volatility information for a much longer period of time than bar charts. Additionally, depending on the price movements, the candlesticks are colored differently.

Black or red candlesticks are generally associated with falling candlesticks. White or clear candlesticks are generally associated with rising candlesticks.

This picture shows how values are represented in the form of a candlestick.

• 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. They filter out minor price movements which make it easier to spot trends in prices. Also, this feature makes the chart appearance more uniform.

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.

• Heikin Ashi Chart

Another popular type of technical chart that originated in Japan is the Heikin Ashi chart. On this chart, you can clearly see the uptrend and downtrend. It indicates a strong trend when there are continuous green HA handles without lower shadows.

When there are continuous red handles without upper shadows, this indicates a strong downward trend. HA bars are averaged, so there are no exact open and close prices.

• Point & Figure Chart

Using vertical rows of Xs and Os, Point and Figure Charts are one of the most common types of technical analysis charts. X's appear in a row when the price of a share increases. As it goes down, however, the vertical row of O's indicates the same.

It is easy to plot and follow this chart for technical analysis. Point & Figure Chart is a disciplined method for identifying current and emerging trends. It can help you locate entry and exit points more easily.

Conclusion

As a trader in the stock market, you need to be able to understand a chart and what it represents. You can use this information to identify price patterns on the stock market and make better trading decisions.