Understanding stock market graphs can prove difficult for anyone learning to invest in shares for the first time. It becomes even more complicated when you have learning to invest a particular kind of stock market graph and then you’re presented with information in a different kind of chart the next time.
To experts, though, it isn’t difficult. Despite the kind of graph used, the information for a particular share at a particular time remains the same. The reason for this is that all kinds of stock market graph information are an interplay of price, volume, and time.
Having cleared that, we’ll show you the different kinds of stock market graphs that you should be familiar with.
Types of Stock Market Graphs
There are four major kinds of charts that you’ll come across in your journey to understanding and interpreting stock market graphs. They include:
1. Line Charts
Line charts are the most used kind of stock market graphs. It is simple to plot and easy to interpret. This kind of chart usually has a line that runs on the body of the graph from left to right, connecting the closing prices at each specified time interval. In a line chart, you’ll mostly find the information on share price or the trading volume on the vertical line Y-axis. The time is usually on the horizontal X-axis.
To plot this graph, take a particular date and mark the closing share price with a dot in a way that corresponds with the date/time concerned. You do this for the different periods during the trading day and use a line to connect the dots.
The advantage of the line chart is that it gives a complete view of the historic action of price in a single line. However, for active traders in the stock market, the line chart can be a bit too simplistic.
2. Candlestick Charts
The Candlestick is a more complex stock market graph that was first developed by Japanese rice merchants in the 1700s. It gained popularity in the USA in 1991 because of Steve Nissan. This chart is made up of candlesticks that have three components – the body of the chart, the upper tail, and the lower tail. The tails are also called wicks, while the body of the chart is made up of the opening and closing share price drawn against their time interval or period.
The body of the candlestick chart is either green or red. The green candle shows that the closing price of a share was higher than the opening price, while the red candle shows that the closing price of a particular stock is lower than the opening price. The upper and lower tails, on the other hand, are thin lines that move from the top to the bottom of the candles, towards the highest and lowest price for the period. This kind of chart is mostly used by chart traders.
3. Bar Charts
A bar chart is almost similar to a line chart. The difference between the two is the absence of color in the body of the chart between the opening and closing price. They are also called the Open-high-low-close (OHLC) charts because they use vertical lines that run from the highest price to the lowest price for a particular period. It also uses a horizontal line that runs from the left at the opening price to the right at the closing price.
Bar charts are simple to understand, just like the line chart. However, it holds more information than the line chart, while visualizing price range better than the candlestick graph.
4. Point and Figure Charts
When the Point and Figures chart was first introduced, the purpose was to serve as a price recording system. But with time, it has evolved to become one of the kinds of graphs used in the stock market, although it is not commonly used. The point chart mostly focuses on the significant movement of prices, using Xs and Os. The X column stands for rising prices, while the O column stands for falling prices.
The beauty of the point graph is that it displays the volatility in stock price over a period. Another component of the point and figure chart is the boxes where all the labels of the chart are written in. Each box represents a period of increment that is dependent on the price movement. It could be for a day or a range of days.