Lines, Bars and Candlesticks Charts
There are three distinct ways of interpreting the price graph on a stock chart: a Line
chart, a Bar chart and a Candlestick chart. Each trader has their own favorite when it
comes to use, but most will incorporate more than one into their trading regimen.
The line chart is the one most commonly seen in magazines and newspapers. It simply
plots where the stock traded at the close of the designated period. A line chart
offers very little room for interpretation and has limited information. But the line
chart is preferred by many traders when it comes to drawing support and resistance
lines. It is easier to spot many patterns, like double tops or head-and-shoulders, on
a line chart.
The bar chart exhibits the opening price with a tick on the left side of the middle
bar and the closing price with a tick on the right side of the bar. The top of the
bar denotes the high of the day and the bottom of the bar denotes the low of the day.
Some traders feel the bar charts all tend to blur together, which can make it
difficult to read and process.
Candlestick charts were invented by the Japanese in the 17th century and brought to
the American markets by Charles Dow around 1900. All the information a trader needs
is encapsulated in the candlestick body, which shows the opening and closing price,
as well as the low and high of the day. An open candlestick denotes a bullish day,
while a filled in candlestick denotes a bearish day.
Many traders will draw their support and resistance lines with line charts, then
switch to candlesticks to determine if a trend is in place.
Stock Chart Basics
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