A stock chart is a graphical illustration of historical stock prices that aids in gauging the price movement of the stock over time. There are four main types of stock charts available to the typical day trader or investor. These charts vary in complexity and are used depending on the details sought. The available types include:
- Bar chart
- Line chart
- Candlestick chart and
- Mountain chart
In this post, we will focus on the movement of the S&P/TSX Composite Index during the last 6 months (October 4, 2010 through April 1, 2011). The time line for the charts is the same but it is interesting to see the variation in the way the data are plotted based on the chart chosen.
Bar Chart (OHLC)
OHLC stands for Open, High, Low, and Close. This chart consists of a series of vertical lines that represent data points for the open, high, low, and close prices of the trading day. The vertical line represents the high and low for the trading day. The trading range is the difference between the high and the low price for the day. The open price for that day is shown by the dash located on the left side of the vertical line. Similarly, the close price is shown by the dash located on the right side of the vertical line.
Sometimes, bar charts are color-coded. If the left dash (open price) is lower than the right dash (close price), then the vertical line will be in black to signify an uptrend for the stock; on the other hand, if the dash on the right side (close price) is lower than the dash on the left side (open price), then the vertical line will be in red to indicate the downtrend.
The line chart shows only the closing prices over a set time frame (6 months in the chart below). The line chart is built by connecting the closing prices over the period in question but it does not offer any other data such as the high, low, or open prices. Nonetheless, the line chart is a useful tool since the closing price is often treated as the most significant price among the four.
The candlestick chart is similar to a bar chart (OHLC) but it varies in the visual representation. The candlestick chart also consists of a vertical line showing the day’s trading range (i.e., high price – low price). The variation (between OHLC and Candlestick) lies in the presence of a wide bar on the vertical line, which signifies the difference between the open and close prices. Candlestick charts also employ colors to visually describe the day’s price movements. However, due to the lack of a universal standard, it is essential to know the candlestick color patterns employed by the website you are referring to.
Usually, if the stock was on an uptrend and closes above the open price, then the candlestick will be white or clear. If the stock was on a downward trend for the day, then the candlestick will be red, black, or blue.
Mountain charts are another basic representation as they simply link the closing prices of the time period and shade the area below them. They are virtually an extension of line charts.
Do you use stock charts? What is your preferred chart type? Are there more types?
About the Author: Clark works in Saskatchewan and has been working to build his (DIY) investment portfolio, structured for an early retirement. He loves reading (and using the lessons learned) about personal finance, technology and minimalism. You can read his other articles here.