Technical analysis is one of the most important aspects of the stock market. An entry at the wrong price in a stock that is performing well can lead to heavy losses. To know the right stock along with entry and exit price, you must learn technical analysis. Technical analysis is done on a stock chart where price and volume data are placed.
Technical analysis involves the reading of historical data and using different types of indicators to predict the future price movement of a stock. To become successful in technical analysis, you must understand what a chart is and how to read them.
What is Stock Chart?
A stock chart is a graphical representation of price and volume over a period. The X-axis on the graphical chart is represented by time and Y-axis shows the price movement. The time frame on the chart can vary depending on the study.
Different Types of Charts
There are many types of charts that technical analysts use while studying a stock. However, some of the commonly used charts are as follows;
· Line Charts
A line chart is a most commonly used chart. This chart represents the closing price of a stock over a specific period. The closing price on the chart is represented using a dot. The graphical representation is done by connecting the dots of different days by a line. Line charts are very helpful in understanding the trend and price movement of a stock. However, the line chart does not give detailed information about the intraday movement in the share price.
· Bar Charts
A bar chart is very similar to a line chart but it offers much more information. The bar chart has no dots but it has a vertical line with two horizontal lines protruding out from each side of the chart. The top of the vertical line represents the highest price in a day while the bottom of the vertical line is the lowest price of the stock during the day. The horizontal line towards the left side is the opening price of the stock and the horizontal line towards the right is the closing price of the stock. The bar chart helps in understanding the intraday movement of stocks.
· Candlestick Charts
Candlestick charts are one of the most widely used charts. They offer the same information as the bar chart but in a better way. A candlestick chart comprises of rectangular boxes with lines coming out from both sides. The upper line represents the high price of the stock during the day and the line at the lower end is the lowest price of the stock during the day. The rectangular block is called the body. Using candlestick charts you can very well understand the intraday volatility of the stocks.
A candlestick chart has a light and dark shade. When the closing price is higher than the opening price, the candle is of a dark shade (black). And when the opening price is higher than the closing price, the candle is of a lighter shade (white). If you notice a higher variation in the colour of candles, it means that the stock is more volatile.
· Point and Figure Charts
Before the introduction of computers for stock analysis, point and figure charts were extensively used. These days hardly a few people use it. The reason why it is not popular is that it is difficult to understand and complex. A point and figure chart’s main characteristic is to display the volatility in the stock price over a period of time.
The above mentioned are some of the different types of charts. If you want to learn technical analysis you may get in touch with Indira Securities. You may also consider opening a demat account with us. We offer a wide range of broking services at nominal rates.
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