Traditional Types of Charts

Candlestick charts would be very difficult to use if you had to construct them by hand for a long series of trading sessions. The Internet has changed all of that, making charts of all kinds easy to tailor and instantly available.

Key Point

The Internet has made trading fast, efficient, and easy. However, this means that the potential for losses is equally fast, efficient, and easy. The Internet does not ensure profits; it exposes you to greater potential and to greater danger.

Before the modern era, traders relied on services to provide charts to them or they had to build them by hand.
The most basic kind of chart is the line chart, which is simply a line tracking a stock's value over time. The value used is usually the day's ending price.

A typical line chart is shown in Figure below. This is a chart for three months for Home Depot (HD).

[caption id="attachment_12731" align="aligncenter" width="550"](HD) Home Depot (HD), line chart. Chart courtesy of[/caption]

This chart provides you with a very simple summary of the sequence of closing prices on each session. As a broad overview of Home Depot's price history, this is useful; but it does not provide any useful intelligence about the trend within the price, or of what is likely to happen next. For this you need to be able to analyze each day's opening and closing price as well as the complete trading range (the range usually includes some movement above and below the opening and closing levels).

Key Point

The value of charted information is important because you need to see not only the current price, but how that has changed from session to session and within each session.

An example of a chart that was a favorite before candlesticks caught on is the OHLC chart. This is an abbreviation of the four main features, 'open, high, low, close,' that are summarized on the chart.

The same history of Home Depot, but in OHLC format, is shown in Figure below. Although the history is identical, the detail is much greater on the OHLC than on the relatively simple line chart. The vertical stick on each session represents the full trading range for the day. The small horizontal protrusion on the left is the opening price, and the one on the right is the closing price. The distance in between these two is the breadth of the day, or the distance between opening and closing.

[caption id="attachment_12732" align="aligncenter" width="550"]Home Depot (<a href=HD), OHLC chart." src="" width="550" height="331" /> Home Depot (HD), OHLC chart.[/caption]

By Michael C. Thomsett
Michael Thomsett is a British-born American author who has written over 75 books covering investing, business and real estate topics.

Copyrighted 2020. Content published with author's permission.

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