Charts in Stock Market
In this episode we are going to discuss about different kinds of chart patterns used in stock market.
Line Chart
A single line from left to right connecting the closing prices (or any other specified price data point) at each chosen time interval makes up a line chart. The diagram appears to be a simple graph. It presents the historical price action in one line from above. This common form of chart is used in reports and presentations to provide a very broad overview of the history and present trajectory. To forecast possible price inflection and break points, trend lines are frequently drawn between peaks and valleys. The majority of the time, this chart can be a little too basic for aggressive day traders.
Candlestick Chart
Candlestick charts were developed by Japanese rice merchants in the 18th century to track the movement of rice futures prices. Japanese candlesticks were first introduced to the United States in 1991 by Steve Nissan in his book Japanese Candlestick Charting Techniques. Candlestick charts are standard on almost every platform and are the most popular chart style used by traders. The chart uses the dates of the open, high, low, and close prices for each set time interval to generate the candles that are plotted on the price chart.
A candlestick consists of three parts: the body, the upper tail, and the lower tail. The tail is also known as the core. The body consists of the opening and closing prices of the time interval, also called period. Body color is green or red. A green candle indicates that the closing price was higher than the opening price. This is considered bullish as the net result is an increase in price.
A red candle indicates that the closing price is lower than the opening price, resulting in a negative net price drop. Top and bottom are two thin lines extending from the top and bottom of the body to the highest and lowest values for that period. Traders often look for specific candlestick pattern formations to generate trading signals.
Bar Charts
Bar charts are also known as Open-High-Low-Close (OHLC) charts. It is a Western version of Japanese candlesticks. Bar charts simply use vertical lines that extend to the highest and lowest values of a specified time period, a short horizontal line that extends to the left to indicate the opening price, and a short horizontal line that extends to the right to indicate the closing price. Candlestick-like bar color is based on closing price net profit (green) or loss (red). Coloring is optional.
The main difference between bar charts and line charts is that there is no colored body between the opening and closing prices. Many traders find line charts easier to follow due to their simplicity.Bar charts tend to show price ranges more easily than candlestick charts, which tend to show sentiment. For example, a large red body may indicate pure fear (leading to panic selling), which can be disconcerting for some traders who prefer to maintain a neutral interpretation based on price range expansion and contraction. may scatter.
Point and Figure Chart
Originally developed as a price recording system, it has evolved into a charting method. These simple charts filter out the "noise" while focusing only on important price movements. X and O show how easy it is to follow trends and draw trend lines. The chart consists of X's and O's representing net price changes. The X column represents price increases, and the O column represents price decreases. The steps range from days to months and are marked with numbers and letters. All labels are written on the box. Each box represents an incremental period, such as a day or series of days, all dependent on price movements. A column can be either X or O, but not both. What makes these charts unique is that they do not use linear time inputs like candlestick, line and bar charts do. Depending on the method, a new column is started when the price goes above or below the level. This usually requires a price movement greater than or equal to the reversal distance.
There are various ways to mark the P&F chart using just the close or high and low prices. Only one data point is used at a time. A simple X and O column can give a clear picture of resistance levels and trends. In this example 19 is a clear resistance strong enough to exhaust buyers, reverse an uptrend to a downtrend and return to the 10-support area. Tom Dorsey is one of the innovators of this methodology and for using I have a lot of detailed material on strategies written in P&F charts.
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