Trading Chart - Details and Types You Must Know | Espresso

Trading Chart: What is it and How to Identify the Best Trading Chart in Stock Market?

Technical analysis in the trading markets is all about the correct timing. For example, you may trade in a stock that is performing quite well, but if you trade at the wrong value. This is why traders use different techniques and tools to make the right choices and trading decisions in the stock market. And one of the most popular tools that traders use is the stock trading chart.

Published on 30 January 2022

What is Stock Market Chart Analysis?

A stock chart is the graphical representation of the stock prices and the volume movements of stocks over a certain time frame. In the graphical stock trading chart, the time period is represented by the X-axis, and the price movements are represented by the Y-axis. The time period varies from intra-day trading to even a few months of trading in the various trading platforms.

Top Three Trading Charts That You Must Know

Technical analysts in the stock market use several trading charts. These are usually based on the type of information they are seeking. However, mostly three kinds of charts are used. They are as follows:

1. Line charts

This one is the most common trading chart used by analysts. It tracks the closing stock prices over a specific time frame.
Also Read: Best Time Frame for Intraday Trading

A dot represents each one of the closing price points in the chart. And all of these dots are connected through lines for a graphical representation.

The line chart is often considered the simplistic form of a trading chart. Also, it helps the traders to spot the price movements of the stocks. However, since a line chart will only track the closing price, it will not provide much data on the intraday trading price movements.

2. Bar charts

Bar charts are relatively similar to the line charts. However, bar charts have more information than line charts. Instead of dots, the bar charts have plot points in the graph represented by a vertical line. The lines of a bar chart consist of two horizontal lines outspreading from both sides.

The top part of the bar chart’s vertical line represents the maximum value at which the stocks were traded during the day. Likewise, the lower part of the vertical line reveals the lowest traded stock price.

The left extension of the line represents the opening stock price, and the right extension represents the closing stock price for the day. Apart from this, the bar chart also offers great details about the stock volatility. For example, when the line is longer, the stocks are more volatile.

3. Candlestick charts

Candlestick charts are quite popular amongst technical trade analysts.  These charts offer quite a lot of information that too very precisely. Also, as per its name, the price movements in the candlestick charts are represented through the shape of a candlestick.

Again, it’s quite similar to a bar chart as it also represents the trading data points of high price, low price, opening price, and closing price. Bar charts offer volatility data only for a single trading day. However, the candlestick charts offer trading information for a larger period of time.

Additionally, the candlesticks are represented in the chart in various colours according to the price movements. A black or red candlestick represents a falling price, whereas a white or clear-bodied candlestick represents a rising price.

Identifying the Best Trading Chart in the Stock Market

While analysing stock charts, the investors can make use of several technical indicators to help them better to identify the price movements, trends, and to anticipate the market reversals from bull to bear and vice versa.

One of the most frequently used technical indicators that investors can use while identifying the trading charts is the moving average. Such averages are mostly applied to everyday stock charts and are usually the 20-day, 50-day, and 200-day ones.

So, when the shorter moving average period is above the longer moving average period, the stocks are considered to be in an uptrend. On the contrary, if the short-term moving average is below the long-term moving average, the stocks are on a downtrend. 

Conclusion

Among the top three trading charts mentioned above, the candlestick chart is often considered to be the best trading chart by analysts. Also, as a stock market trader, it is vital for you to understand these charts and read them properly before making an investment in the trading platforms. This will help you identify the stock price patterns, and hence, you will be able to make informed trading decisions.

 

Chandresh Khona
Team Espresso

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