In our last lesson we wrapped up our discussion on Dow Theory. Today we are going to talk about the basics of charts.

The tool of the technician when analyzing the forex, futures, or stock markets is the price chart. Very simply a price chart is a chart showing the movement of the price of a financial instrument over a chosen time. As you can see on the chart below of GOOGLE the bottom or x axis shows the time period which was chosen to display (in this case daily), and the vertical or y axis shows the price of the instrument (in this case the stock price of GOOGLE)

Chart of GOOGLE



Most charts will allow a wide variety of time frames to be displayed and the time frame that technicians choose to use varies widely and depends on each traders trading style. In general, longer term traders will focus on daily time frames and above, and shorter term traders will focus on intraday charts such as hourly or 15 minute charts. Many traders will also use a combination of time frames in order to get a full picture of what price has been doing by, for instance, looking first at a longer term daily chart, then moving to an hourly chart, and then finally to a 15 minute chart.

Types of Charts

Although there are many different types of charts which stock, traders of the stock, futures and forex markets use, the most common, which we will review below, are the line chart, the bar chart, and the candle stick chart.

Line Charts

A line chart is the most basic type of chart as it displays the least amount of data. Very simply, line charts display only the closing price of an instrument and are used by traders who do not care about viewing the open, high, and low prices or when only the close price is available.

Example of a Line Chart:


Bar Charts

In addition to the close price, bar charts also show the open, high, and low prices for the time period selected. The name of the chart comes from the fact that the high and low of the instrument for the time period selected is displayed as a two points connected by a vertical line or bar. The open and close are then displayed as short horizontal lines placed across the vertical lines.

As you can see from the chart below bar charts display a much more detailed picture of the price movement of a particular security than do line charts.

Example of a Bar Chart



Candlestick Charts

Candlestick charts (which are also sometimes referred to as Japanese candlesticks because they originated in Japan) display the most detail for the price movement of a security of the three chart types listed here. A candlestick chart is similar to a bar chart with one significant difference – in addition to displaying the open, high, low and close prices, candlestick charts use different colors to represent when the open is higher than the close and vice versa.

In general when the open price for the time period selected is lower than the close, white or unshaded candle form and when the open is higher than the close a black or shaded candle forms. I say in general here in reference to the colors of the candles as sometimes instead of shaded and unshaded different colors such as red for down days and green for up days are used.

On a candlestick chart the thick or colored part of the data points is referred to as the body of the candle and the thin lines at the top and bottom (which represent the space between the open/close and the high/low for the time period selected are referred to as the wick.

Example of a Candlestick Chart and Candles:



Source: tradetrek.com

You should now have a good understanding of price charts and the main types of charts available to you as a trader. In future lessons we will go into more detail of how to utilize a chart to analyze and place trades. In our next lesson we are going to go over the basics of support and resistance and how we can use these levels to spot potential trading opportunities.

As always if you have any questions please feel free to leave them in the comments section below, and have a great day!

Hello!

First of all:
Great work here!!! Awsome course!
I have two questions thoe.

Where I could get a free chart tool?

And how can I get real-time data of trading? You know... real-time prices of stocks.?
And if this data is free?

I am total begginer as you can see from the questions.

Thank you in reply.
Best wishes

Hi Boris,

Thanks for the comment I am glad you like the site and welcome to the community.

Please see the below post for the answers to your questions and let me know if this does not contain the answers you are looking for:

Software

Best Regards,
Dave

Thank you!

That helped a lot.

Best Regards,
Boris

My pleasure boris. Feel free to post any other questions or knowledge that you gain along the way.

Best Regards,
Dave

Dave,
I know this is probably an idiots question, so please do not laugh. I do not understand the open and close. As I am giong through your video courses step by step...and knowing what I know about candlestick charts...there is an open and close price, but to me if I am watching a minute by minute chart...how is there an open and close price for each minute? how is there a candle stick for minute by minute...doesnt open mean the price teh stock was when the market "opened"? and the close price is the price when the market closed for the day? how can the open and close change minute by minute if the market is not closing or opening? I can understand how the high and low change but not the open and close.

thanks

Teresa

Hi Teresa,

Glad to hear from you.

In addition to their being an open, close, high, and low for the trading day, there is also an open, close, high, and low for the timeframe chart that you are looking at. So for example if you are looking at a daily candlestick chart, then the open, close, high, and low for each candle will be the open, close, high and low for the day. If however you are looking at a 1 hour chart then the open, close, high, and low for each candle will be the open, close, high, and low for that hour. Similarly if you are looking at a 1 minute chart then the open, close, high, and low for each candle will represent the open, close, high, and low for each minute.

Hope that helps. If there are any other questions or comments on this one please feel free to post as always.

Best Regards,
Dave

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Disclaimer: Trading is risky and can result in substantial financial loss. As always my posts are simply one traders opinion and should not be taken as trading advice. I am not a financial adviser so everyone please do their own analysis and take responsibility for their own trades.