Knowing how to read a stock chart is an absolutely essential skill if you want to start building your own market analysis technique, for whichever type of asset you wish to analyse (stocks, indices, commodities, forex).
Here we present 3 different types of chart:
1. The continuous curve
This is the simplest graphical representation. In this chart, each point corresponds to a closing price. The points placed end to end form lines which in turn form a curve.
Despite its simplicity, this chart is rarely used by traders in reality. It will become clear when we look at other types of chart that this one lacks important details that are essential for making informed analyses (example: GAP, low and high points of the time period, etc.)
It is important, however, to be able to read this type of chart that is often used by the media or by some independent platforms.
2. Bar charts
A bar chart is a collection of price bars, each bar consisting of a vertical line with small horizontal lines. Each bar corresponds to a price movement for a given time period (in this example, the time period is days).
Bar charts give us a lot more information about the given time period. The bars provide us with information on the opening and closing price as well as the lowest and highest prices reached during the period. We therefore have a clearer view of the full range of the time period.
A rising bar chart (the closing price is higher than the opening price) is often blue or black in colour. A falling bar chart, on the other hand, is generally red or black in colour.
The bar chart is often used by traders because, as you will have noticed, it offers much more detail than the continuous curve chart.
3. Japanese candles (also called Candlesticks)
For more information on the Japanese candles, we suggest that you click on the link below to view our previously published article. In this article we offer some insight into how Japanese candlestick charts function and why they are important for market analysis: LINK
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