Technical Analysis: Part 2 (Chart types)

What is Chart?

A graph of the price movements of a given security over a given time period. Charts are the basis of Technical Analysis which is used for plotting data & predicting future trend. The time frame used for forming a chart depends on the compression of the data: intraday, daily, weekly, monthly, quarterly or yearly.

Types of Charts:

• Line Chart: The line chart connects the points of each day closing price over a period  & creates the line chart. Line charts is used as EOD(End of day) charts. Line chart is not used for intraday market analysis.

• OHCL Charts /Bar charts:  OHCL ( open-high-close-low) charts in simple terms known as bar chart.  This chart consist of four important points:
  
  • High - The top point of the vertical bar.
  • Low - The bottom point of the vertical bar.
  • Open - A small horizontal line to the left of the vertical bar.
  • Close - A small horizontal line to the right of the vertical bar.
  
  There are two types of bars:
  • Bullish Bar: When opening price is lower than closing price.
  • Bearish Bar: When closing price is lower than opening price.
  
  Bar Charts has the capacity to plot price gaps, on the other hand inability to plot the whole price fluctuation, even when plotted for extremely small periods of times. 

• Candlestick charts: In the 1700s, candlestick charts is discovered by Japanese man named Homma. The candlestick chart is quite similar to OHCL /bar chart. The candle consist of high, low, open & close same like OHCL/ bar chart.  The candlesticks has the ability to highlight trend weakness & reversal signals that may not be clear on a normal bar chart.  In technical analyze, mostly the candlestick charts are used because the patterns formed in these charts are convenient to analyze.
  
  Candle has two types.
  • Bullish candle : When closing price is higher than opening price & the body of candle is hollow or unfilled.
  • Bearish candle :When opening price is higher than closing price & the body of candle is filled or shaded.
  
   Below is the example of candlestick graph.
  
   
  In Candlestick charts, bullish candle is filled it means current day opening price & closing price is higher than previous day closing price.
  
  And,
  
  If bearish candle is unfilled it means previous day closing price is higher than current day opening price & closing price.
  
   

Next blog we will see terminologies used in technical analysis.