Understanding the stock market is like trying to figure out astrophysics for many. We hear of the impact on the economy when stocks go low and wonder what it means for us. A basic understanding is, therefore, important before we list the different stock charts used by investors.
At its basic level, stocks are shares or a unit of ownership of a company. There are different types of shares too and each has different attributes. When a company offers an IPO or initial public offering, it invites individuals to buy units of ownership. This entitles the share holders to receive profits if the company does well. If it plunges, that share’s value depreciates.
A stock chart helps traders and investors find accurate information about stocks. This gives them a clue of how to make income, which company to invest in, which is likely to fall in the coming months and so on. Most charts are difficult to understand initially and they take time to master. Below is a list of five main types of stock market charts.
Point and figure
The point and figure chart was once commonly used but has been replaced by others. A set of X’s and O’s define price rise and fall respectively. Numbers and letters indicate time, i.e., month and date.
Point and figure charts remove insignificant price movements so that users are not distracted by ‘noise’. However, many details deemed significant by some investors are not present which is why other types of charts are preferred.
Line charts are one of the most basic types, representing only closing prices. There is no information on opening, high and low prices. Despite this lack of detail, line charts are nevertheless very useful because closing prices are considered more important than opening prices, highs and lows.
A bar chart is similar to a line chart but contains more details. Vertical lines represent data points showing the highs and lows in a trading period. Opening and closing prices are indicated by small dashes between the vertical lines with the dash for the opening price on the left and the closing price on the right of the lines.
The chart will also contain other data points like the color red to indicate stocks that have fallen in value for that period and black for those that have risen.
Candlestick charts look like bar charts but display more information. Colored vertical lines are still used but the addition of bars on the lines show the difference between opening and closing prices.
Candlestick charts are more difficult to understand only because there is no standard configuration. Websites may use data points to indicate other information which is why investors prefer line and bar charts which are standard.
Mountain charts are like line charts – indicating only closing prices for a set period – but are colored rather than black and white.
Stock charts present investors and traders with a tool to study the market. While they influence the decision to buy or sell, they can only do so far in helping people trade with complete certainty. Stock markets fluctuate every day and thoroughly understanding them to make wise trades takes years to learn. Therefore, beginners shouldn’t rely solely on charts but take the time to study the stock market.