There are three basic types of stock charts that every trader learns when they first start trading – line charts, bar charts, and candlestick charts. Below we will take a look at each type of chart.
The line chart is the most basic of all stock charts. It shows you the closing price of the stock over a set period of time. The problem with line charts is that they don’t show any other information about the stock such as the opening price or the intraday trading range of a stock. While the closing price of a stock is very important, the more information you can get about a stock the better. That is why most traders do not use this type of chart.
A bar chart expands on the bar chart by adding several pieces of information about how the stock is trading. This type of chart is made up of a series of vertical lines that represent the high and low of the day. The open and close are represented by horizontal dashes – the dash on the left side of the vertical line is for the open, and the right side is for the close.
Candlestick charts are the most popular charts used by traders. They are similar to bar charts, but looks different. Candlesticks were developed in the 1700s by a Japanese man named Homma. He was a trader in the futures market and discovered that while there was a link between the price and the supply and demand of rice, the market was influenced heavily by the emotions of traders. His development of candlestick chart techniques has led to many candlestick chart analysis books.