A stock chart is a portrayal that reveals certain characteristics of a particular stock or the market in general. Stock charts, in their most rudimentary form, show the relationship between stock values and prices. These charts are plotted over a period of time to allow stock traders–and other professionals– to gauge a stocks value. The price of the stock is represented on a vertical axis and the time is represented on the horizontal access.
A stock chart is probably the most basic trading tool to calculate all kinds of information. This information ultimately helps a trader or stock professional to find out whether the equity is a good investment or a short-sell candidate.
Charts are usually made up of daily and intraday data for interpreting short term movements. However, intraday data is used to analyze daily price data, and daily price data is combined to make weekly data. When looking at certain stocks it is not only important to see what the short term trends are but also whether the stock has had a long term downward or upward trend.
There are three types of charts that are used: line, bar, and candlestick.
Line charts are the most basic form of stock chart and are built by using only the closing price for the stock for each time period. Some stock traders feel this is the most reliable form of stock chart because it only uses closing prices to calculate the chart and ignores opening, highs, and lows that many traders find to be inconclusive data.
A Bar chart is a stock chart that uses a single bar for each time period that show the open, high and low, along with a horizontal bar to indicate the open and another to indicate the close for that particular period. On a daily stock chart, each line or bar represents the open, high, low, and close for the trading day. Bar charts have a tendency to include more data than line charts.
The third type of stock chart is referred to as a candlestick chart. A candlestick chart is a bar-chart used to describe price movements of a stock, currency or derivative. This type of stock chart is a combination of a bar chart and a line chart, so that each bar represents the range of price movement over a specific period of time.