Deciphering Stock Charts

Stock charts can be as simple or as complicated as the end user would like, tracking any length of time, from 10 seconds to 10 years.  Charts represent the change in stock prices over time in an easy to read visual. There are many different kinds of charts and bars than can be used to help you make the best decision and read into the stock market.

Line Chart

The line chart is the most simple stock chart. It takes the close value for each of the periods on the chart and plots them, then a line in drawn to connect the dots up and down. While line charts are very easy to read, they lack critical information on how high or low a stock went before closing since only the close price is noted on the chart. Also, for technical studies, the line chart is one of the worst charts to use, as it does not show the whole picture, and instead, just how a stock closes. For a quick glimpse at a long term stock price, the line chart is a favorite. Line charts should never be used as short term charts, however.

Bar chart

The bar chart is not like the bar charts in math class. A bar chart is a chart composed of many different bars which show the open, high, low and close of the day. Bar charts show much more information than line charts and are favored by quick trading professionals and amateurs alike. The bar chart should be used in short time frames or when you would like to see how a stock did over the course of a day instead of the closing price.

Candlestick charts

Candlestick stock charts are composed of hundreds of "candlesticks." In essence, a candlestick stock chart is a bar chart with a bit of color and much easier to read. The candlestick chart gets its name because the bars resemble candlesticks. Candlestick charts show the open, high, low and close and then also indicate by color which direction the market moved. Many online discount stock brokers offer the ability to change the color of your candlesticks. Most traders choose to use a white color for up candlesticks and a black color for down candlesticks. Others favor a green color for up and a red color for down for ultimate contrast. Candlestick charts also allow a form of technical analysis known as candlestick reading or candlestick patterns wherein certain patterns will indicate how the stock price will move.

There is an inherent benefit to whatever stock chart setup you use. Some favor the unadulterated and simplistic line chart to a complex candlestick chart just for the ease of use. Day traders would never give up their candlestick charts for anything else, as it allows for complex technical analysis studies. Finding a good chart for you means using what is comfortable to your approach in trading, but also what is most visually pleasing.