If you’ve ever watched financial news or looked up the price of a stock, chances are
you’ve read a stock chart.
A stock chart is a graph that displays the price of an investment over a period of time.
In this video, we’ll discuss some chart basics, view three common types, and show
you how each displays an investment’s performance.
Finally, we’ll introduce a few basics of technical analysis, which is an investment
strategy that analyzes charts to help forecast future price movements.
Let’s start with charts.
The main purpose of any chart is to display the current price of an investment and how
its price has changed over time.
One of the most common chart types is a line chart.
A line chart is fairly simple.
Time is represented along the horizontal axis.
This time frame can be adjusted to show any period you want, from minutes…to days…to
years.
And price is represented along the vertical axis.
Points are added to the chart to display the investment’s price at the end of a trading
period.
On a daily chart, this would be the closing price at the end of a trading day.
On an hourly chart, this would be the price at the end of the hour, and so on.
The points are then connected with a line, which provides an easy way to visualize price
changes.
Often, another chart may be displayed just below the line chart.
This chart displays the security’s volume, which is the total number of shares bought
and sold during each time interval.
Volume is a way to measure trading activity.
The higher the volume, the more buying and selling there was during that time period.
Finally, let’s examine the information covered at the top of the chart.
This section includes the company name, the stock exchange on which the security is traded,
and the current date.
This area also provides additional details on price, such as the time period’s opening
and high prices.
The amount of information detailed at the top of the chart will vary depending on the
chart provider.
Here’s some information you might find on a daily chart.
The opening price is usually labeled Open, or it might be abbreviated as O.
This is the stock’s price at the market’s open.
The highest price the security reached is labeled High, or H.
The lowest price the security traded at is labeled Low, or L.
The difference between the high and the low is range, which is labeled Range, or R.
The security’s closing price is labeled Close, or C. The closing price is typically
the value shown in a line graph.
Then we have Volume, or V.
This calculates how many shares or contracts were traded.
Finally, we have Change.
This shows both the dollar amount and percentage change from yesterday’s closing price to
today’s closing price.
You can also view all this information, like the opening and closing prices, on a bar chart.
This chart uses a vertical bar instead of a line to represent price.
This bar provides additional details about price movement during a single trading period.
The left tick is the opening price…the right tick is the closing price…the top of the
bar is the highest price traded…the bottom is the lowest.
Some investors might prefer a bar chart over a line chart because they believe it better
reflects market sentiment in the price action of a security.
In other words, you can see if other investors are bullish…or bearish…on a stock.
You can also see this information on a candlestick chart.
Candlestick charts feature the same components of a bar chart, like the opening price, closing
price, and the day’s high and low.
The lines above and below the body of the candlestick can be referred to as wicks.
If a security closes higher than it opened, the candlestick is empty, or white.
But if the security closes at a lower price than it opened, the candlestick is filled,
or black.
This use of color helps investors quickly identify the security’s performance.
Some investors might use a candlestick chart instead of a bar chart because they think
it’s easier to identify market sentiment and patterns.
These patterns attempt to predict how the market will move in the future.
For example, one particular candle shape may forecast that the market is due for an upswing.
This is just one example of technical analysis.
There are a variety of techniques that can be used to closely analyze trends, price patterns,
and volume movements.
All three chart types are widely used.
Generally, the type an investor uses is often a matter of preference.
Next time you pull up a chart, try using a different chart type and see which you prefer.