You might have seen someone analyzing stock movement using some charts in stock market (graph structure). Have you ever wondered what is it? Why it’s necessary?
When stock moves, to analyze that past movement becomes an extremely important task. so that you can predict future movement on stock.
So, the graph of the stock price is basically a chart and a very important tool. But along with that, it has to be user friendly and also the one which gives all details about stock, so that any detail won’t be leftover.
Types of Charts In Stock Market?
- Line chart
- Bar Chart
- Japanese Candlestick Chart
What is the LINE CHART?
Now let’s look at the below chart.
This the chart in the picture called a LINE chart…It’s a very very simple chart to understand also you can see it’s a line which is connecting the price of stocks just like a line which is connecting dots.
So simple and this chart is useful only when we wish to see the performance of entity for a longer period say a month, a year or few years.
The drawback of LINE chart
But why looks simple doesn’t mean it’s showing everything as I see it’s missing some details. And it tells you only GROWTH / FALL of an entity.
Plus, the only closing price of stocks if you look into the past. You don’t know the Low and high price for a particular duration.
Let’s say I want to know the low, high, open, close of 11th April but in the line chart, you can’t see all details…
BAR chart or OHLC chart
As the name suggests it consists of Bars. The lower point is LOW and the higher point is HIGH
Dash on Right side is CLOSE and on the left side is the OPEN price of an entity
Types of BAR Chart
Type of bar chart can be UP and Down day or it can be Inside and Outside day. What does it mean? Let’s see.
Up day = The high and low of the present bar is higher than the previous bar it’s UP day. And exactly the opposite is
Down day = When High and low of the present bar is lower than the previous day.
Another way of differentiation is
Inside day = the high of the present bar is lower than the high and low of the previous bar.
Outside day = the high of the present bar is higher than the high and low of the previous bar.
Please note not all candles use Dash though.
The weakness/drawback of the BAR chart
But still, if you look at the bar chart it does look good but it’s not the perfect way to find the momentum of a stock, also if all candles look almost similar except the difference in size, How can u judge stock movement perfectly? You can’t.
Now a few questions left unanswered in Bar chart, Difference in size but is it top??
If you see big movement then you can see it in a big size bar but was it indecisiveness or Bullishness?
What is the Japanese Candlestick??
So, we have another very powerful tool. which is known as CANDLESTICK. The most commonly used and most effective. It’s originated in Japan and it’s use dates back to the 18th century which was done by Rice merchant. The importance of it you will see ahead as it follows price analysis it’s leading indicator. The names of different Candlestick which we will study ahead will be Japanese only ..like Marubozu, Doji, harami.
There is also different Candlestick based on size too, as you can see in the above picture. Does it matter? Yes, it does matter too.
More size suggesting more activity on the chart for a particular duration. If it’s fighting between Bulls and bears then it may reverse the prior strong trend. How? We will study it soon in an upcoming article on candle name DOJI.
Does the duration and Size of Candlestick matter??
Also, in large size candles if only buying or selling is seen.. then it will be much more compared to other small candles. So that will set a trend in motion. How? We will study it again in the next article on the candle name Marubozu candle.
Now in the below picture, can you tell me Where is OPEN, CLOSE, LOW, and High??
See the Different types of duration are used in the chart in the above picture.
To find short term movement in intraday we use below 30 min duration and positional trade or long-term investment we Use duration above that.
In the next session, we will study more interesting part which you all are eager to know
How 1/2/3 candle can tell you a big trend ahead or trend reversal ???. Trust me you will know it and we will help you to understand it simply and effectively.
All the above charts in the stock market create goes to trading view