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 What Is a Chart?
In technical analysis, charts are similar to the charts that you see in any business setting. A chart is simply a graphical representation of a series of price movements over a set time frame.
Chart Properties
There are several things that you should be aware of when looking at a chart, as these factors can affect the information that is provided. They include the time scale, the price scale and the price point properties used.
The Time Scale
The time scale refers to the range of dates at the bottom of the chart, which can vary from decades to seconds. The most frequently used time scales are intraday, daily, weekly, monthly, quarterly and annually. The shorter the time frame, the more detailed the chart. Each data point can represent the closing price of the period or show the open, the high, the low and the close depending on the chart used.
Intraday charts plot price movement within the period of one day. This means that the time scale could be as short as five minutes or could cover the whole trading day from the opening bell to the closing bell.
Daily charts are comprised of a series of price movements in which each price point on the chart is a full days trading condensed into one point. Again, each point on the graph can be simply the closing price or can entail the open, high, low and close for the commodity over the day. These data points are spread out over weekly, monthly and even yearly time scales to monitor both short-term and intermediate trends in price movement.
Weekly, monthly, quarterly and yearly charts are used to analyze longer term trends in the movement of a commodity's price. Each data point in these graphs will be a condensed version of what happened over the specified period. So for a weekly chart, each data point will be a representation of the price movement of the week. For example, if you are looking at a chart of weekly data spread over a five-year period and each data point is the closing price for the week, the price that is plotted will be the closing price on the last trading day of the week, which is usually a Friday.
Chart Types
There are four main types of charts that are used by investors and traders depending on the information that they are seeking and their individual skill levels. The chart types are: a. the line chart,
a. the line chart,
b. the bar chart,
c. the candlestick chart and
d. the point chart
e. the figure chart.
Line Chart
The most basic of the four charts is the line chart because it represents only the closing prices over a set period of time. The line is formed by connecting the closing prices over the time frame. Line charts do not provide visual information of the trading range for the individual points such as the high, low and opening prices. However, the closing price is often considered to be the most important price in commodity data compared to the high and low for the day and this is why it is the only value used in line charts.
Bar Charts
The bar chart expands on the line chart by adding several more key pieces of information to each data point. The chart is made up of a series of vertical lines that represent each data point. This vertical line represents the high and low for the trading period, along with the closing price. The close and open are represented on the vertical line by a horizontal dash. The opening price on a bar chart is illustrated by the dash that is located on the left side of the vertical bar. Conversely, the close is represented by the dash on the right. Generally, if the left dash (open) is lower than the right dash (close) then the bar will be shaded black, representing an up period for the commodity, which means it has gained value. A bar that is colored red signals that the commodity has gone down in value over that period. When this is the case, the dash on the right (close) is lower than the dash on the left (open).
Candlestick Charts
The candlestick chart is similar to a bar chart, but it differs in the way that it is visually constructed. Similar to the bar chart, the candlestick also has a thin vertical line showing the period's trading range. The difference comes in the formation of a wide bar on the vertical line, which illustrates the difference between the open and close. And, like bar charts, candlesticks also rely heavily on the use of colors to explain what has happened during the trading period.
A major problem with the candlestick color configuration, however, is that different sites use different standards; therefore, it is important to understand the candlestick configuration used at the chart site you are working with. There are two color constructs for days up and one for days that the price falls. When the price of the commodity is up and closes above the opening trade, the candlestick will usually be white or clear. If the commodity has traded down for the period, then the candlestick will usually be red or black, depending on the site. If the commodity's price has closed above the previous days close but below the day's open, the candlestick will be black or filled with the color that is used to indicate an up day. |