Every trader should know how to read stock charts. The three most basic charts are line charts, bar charts, and candlestick charts. Today we’ll briefly discuss each type of chart and which one is the most important one for traders.
Line Chart – Line charts are your most basic chart and is determined by taking the closing price of the given stock each day and plotting it on a chart. While this can be useful for taking a quick look at a stock over the long term, it really doesn’t give you enough information over the short term.
Bar Chart – Bar charts are a little better than line charts because they give you both the opening price and closing price of the stock for the day. Each bar consists of one long vertical bar and two horizontal bars, one at the top and one at the bottom. The vertical bar represents the trading range for the stock, and the horizontal bars represent the opening and closing price. The bar on the left is the opening price and the bar on the right is the closing price. While bar charts are better than line charts for looking at a stock over a shorter period time, candlestick charts are give traders the most information about the stock no matter what time frame you look at.
Candlestick Chart – Candlestick charts and the candlesticking method were developed by a Japanese rice trader in the 18th century. He was able to use candlestick charts to help him predict the future movement of rice futures. This method lives on today with all kinds of strategies that you can read about in many different candlestick chart books. Candlestick charts are usually color coded red and green or black and white to help you determine which way the stock is moving. The bar on the chart represents the opening and closing price of the stock, and the thin line above and below bar represent the trading range for the stock. Candlestick charts are the go to chart for many traders who are trying to trade stocks.
Charts are very important for traders to learn because they give you an idea of what a given stock has done before and can give help you determine how the stock will move in the future.