Line, Bar, Candlestick and Volume Charts

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Chapter 24 — Line, Bar, Candlestick and Volume Charts
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Line, Bar, Candlestick and Volume Charts

Technical analysis uses a variety of data and charts designed to help traders spot the trends in a stock price.

Price and Volume Data

Almost all technical analysis trends focus on price and volume as primary indicators for a stock’s anticipated price movement. Price is very simple to interpret, but combining price and volume can be a little tricky. Price can show a trend; volume can confirm it. A general rule of thumb is that price data is more accurate when the volume is higher because there are more players in the market. These are the five basic rules of combining price and volume data:

 

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a. Charts

Line Charts
 The line chart is the most basic form of chart used for technical analysis. It plots price on the vertical axis and time on the horizontal axis. The range for time can be divided into minutes, days, weeks, months, or years. Each price is represented by a single point on the graph.
 
 
Bar Charts

A bar chart is similar to a line chart, but instead of showing a single point for the price, the bar chart shows the range of prices. The top of the bar is the highest price achieved for the day and the bottom of the bar is the lowest price. A variation of the bar chart can also mark the opening and closing prices for that day.
 
 
Candlestick Charts

A candlestick chart is very similar to a bar chart. It will show the high, low, open, and close prices for the day. If the opening price is higher than the closing price (declining stock price), the candlestick will be red. If the opening price is lower (increasing stock price), the candlestick will be green.
 
Volume Charts

Volume charts are critically important for technical analysis. They are usually attached to the bottom of a price chart. The simple explanation for a volume chart is that the higher the bar, the higher the volume. Combining volume with a price within the same graph makes technical analysis easier to read.

 

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