Price charts allow you to visualize trading activities during a single trading period. Since each period comes with several data points, you need a proper understanding of them to comprehend stock price behavior. Traders usually use three different types of trading charts daily.
Stock chart reading may seem overwhelming at the beginning. Once you understand the fundamentals, you can start finding a good setup for day trading. But first, let’s look at the three most common chart types used in day trading.
Table of Contents
Line Chart
Most aspiring traders start their stock chart reading journey with the line chart since it is comparatively easier to understand. It features a single line that connects all the closing prices of a particular stock for a selected period. However, this chart does not reveal much about each day’s activity.
A line chart allows traders to spot trends easily and visually compare the closing price from one point to another. Even though it does not talk much about intraday fluctuations, traders use this to correlate the overall performance of a stock to the market. Most brokerages base an account’s valuation on the closing price.
Bar Chart
The bar chart allows traders to look at each period’s price range. The variations in size from one bar to the next or over a range of bars give you a clear idea about the volatility of the selected period. The bars start to grow bigger as the market becomes more volatile. The price also swings further in such cases.
If the chart you are reading has smaller bars, the market was less volatile during that period. The vertical height of a bar indicates the range between the highs and lows of a particular stock price during the bar period. The horizontal lines attached to the price bar also help record the opening and closing prices of the period. The line on the left is for the opening price, and the line on the right is for the closing price.
Candlestick Chart
You can consider this trading chart a variation of the bar chart. Traders use this chart to visualize the bullish or bearish behavior of the stock with the help of green or red “bodies.” The color of the candles depends on whether the stock’s closing price was higher (green) or lower (red) than the opening price during a time interval. The high and low prices are referred to as wick or shadow.
You can understand how prices move in a market that’s trending. If you are projecting an average bear market, you will find more clusters of red candles than green ones, and the opposite would apply to a bull market. Traders may also use a particular pattern created by a combination of candles as an entry or exit signal.
Most of these trading charts are used by crypto traders as well. You can track the performance of Bitcoin and other altcoins using such charts.
Other Trading Charts
Besides the major trading charts mentioned above, traders use several other price charts to understand market behavior better.
Volume Chart
If you are looking for the most direct way of measuring the amount of market activity, you need to check out this chart. Volume refers to the number of traded contracts or shares. On a volume chart, the bars (candlesticks) represent fixed volumes. The chart shows less sideways movement when market activity is low.
Tick Chart
Tick charts show the number of transactions that occurred during a particular period. The ticks in the chart indicate transactions. Even though you can do volume analysis with tick charts, you may find less variation in the volume of individual tick bars.
Conclusion
All the other trading charts used in trading are simply variations of the ones mentioned in this article. Now that you have a basic understanding of these charts, you should focus on learning to analyze them and use the data to your advantage.
