All the tools to analyze carefully the price trend in the markets and choose the right time to sell or buy. Three stock charts explained step by step to help the trading online make accurate and accurate maneuvers, so as to make money and minimize the risk in trading online.
One of the most essential actions to do trading online is to read the charts. Learning to analyze the progress of actions can be a very simple process if you know the right methods: understanding what the signs on a chart mean is very useful to the trading online, especially to improve the ability to invest.
Those who operate within the stock market use a lot of graphs and their sales or purchase decisions are based on technical and fundamental analysis.
Here, you would like to provide detailed guidance on reading, analyzing and understanding stock charts.
What is an equity graph?
Before starting, it is essential to understand what is meant by stock chart.
Surely, sometimes you happened to stop in front of the TV or a financial newspaper and see charts with signs that, having taken for hieroglyphics, have made you abandon the idea of understanding the meaning. No mystery revolves around those signs: in fact, the stock charts are designed specifically to make it easier to understand the price trend.
The stock chart is a graphical representation of the price that refers to a particular security in a precise period of time.
When you study a chart and try to understand the price trend, it is said that you are doing a technical analysis. This study is used to understand the price trend in the market, in a past period, so as to make a decision based on the forecast of price direction in the near future.
To deepen the concept of technical analysis, it is suggested to take a look at the article dedicated to it, placed between the footer links.
Three types of charts are considered on the stock exchange, namely the following …
- Candle charts or candlesticks;
- Bar charts;
- Line charts.
It goes without saying that these three representations cannot be used at random, as each of them has a very specific purpose; in particular, the style of trading online that you decide to put into practice will stretch for only one of the three: in practice, it is appropriate to choose the chart that is right for you.
Before explaining carefully the three types of graph, it is equally important to specify which are the main elements that make up a stock chart; the main components are the following …
- The identification section;
- The time horizon (time frame);
- The volume;
- The x axis;
- The y axis.
Focus on the candle graphic
The candlestick chart, also known by the term candlestick, is a particular type of representation of the price trend of a market, especially suitable for those looking for long-term investments, but also for those who use day trading online techniques.
A bit of history on the graphic in candle
The analysis of the candlestick chart has very ancient origins, in fact it is based on the first technical observations, made by the Japanese more than one hundred years ago, to describe the trend of the rice market. Precisely for this reason, the candlestick chart is also known as Japanese candlesticks.
The main feature of these charts is their effectiveness in making the market turning points understand. Moreover, they are also used because their risk reduction potential is high or: however, both these aspects must be adequately used to achieve these objectives.
In the candlestick chart you can read the following components of the market, namely …
- Opening prices;
- The maximum and the minimum;
- The closing price.
Although this type of chart may remember the bar, in reality it is detached from the latter, because, in the candlestick chart, the main body is known, also known as the real body. Precisely this part is used to identify the differences between the opening and closing session of negotiations on a specific day.
Candlestick charts are much simpler and more readable, compared to other types of representation, in particular the following rules apply …
- The length of the bar indicates the difference between the opening and closing prices;
- The color indicates the trend of the stock, i.e. if it is downwards or upwards.
Usually, the colors of the candles can be black / white, or red / green, in any case, the first indicates a candle and then a price down, the other, instead, an uphill candle, therefore an upward price (Nowadays, most brokers prefer green or red candles, considered to be much easier to read and more visually appealing: one has a green candle when the closing price is higher than the opening price, while a red candle when the closing price is lower than the opening price).
The vertical line that divides the candle cover in half and extends above and below it, is called the shadow or tail: the upper end indicates the maximum of that period, while the lower end indicates the minimum. The difference between these two values makes it possible to identify the volatility of a market at that precise moment: the greater the amplitude of the range, the greater will be the volatility.
A candlestick chart provides more information than a linear chart, as the latter only reports the change in closing prices of the security examined, while the former allows to grasp the trend, trends and even anticipate the future situation.
Focus on bar graph
If the operation of the candlestick is already clear, it will be even easier to understand the bar graph. In reality, the latter shows the same information as the first, but unlike the candles, the bars do not have a different color.
The bar graph is used by traders who carry out the technical analysis of a security at pre-established intervals. Precisely for this reason, it is possible to set the graph, so that it shows all the necessary details, relative to the chosen time horizon.
What are the elements that make a bar graph?
In bar charts , also known as OHLC (Open High Low Close), the uptrend and bearish trend is not indicated by a different color, because the opening is highlighted by a horizontal segment that protrudes to the left of the bar, while to indicate the closure is used a horizontal segment that protrudes to the right of the bar: if the opening was lower than the closing, the market would be bullish, while if the opening is higher than closing, we are in the presence of a bear market ; if the opening and closing coincide, the market does not have a specific direction.
The upper end of the bar represents the maximum, while the lower end, the minimum: even in this case, the difference between the two values provides the volatility of the reference market.
Like the candlestick chart, the bar chart is more complete than the linear one, as a series of additional data are provided with it, such as the daily number of shares exchanged.
Both the candlestick chart and the bar chart allow to attenuate the reference period that is the time space dictated by the timing used on the platform. Each bar or candle has a precise time validity, dictated by the period used for the graphic analysis on the platform: for example, with a daily timing, every day will open a new bar or candle that will close at the end of the day.
Focus on line charts
Although unloved by traders who deal with the stock market, line charts are the simplest to read. Within these graphs it is possible to identify the price variation for each market segment, for a certain period of time.
Usually, line charts are used by investors who consider closing levels much more important than other values; however, focusing attention only on this aspect, we risk ignoring the intra-day oscillations, i.e. those that occurred during the day, and this is not very advisable.
Many times, however, operators use these charts when some information is not available, such as opening prices, maximum and minimum: in this case, line charts provide a good idea of the price history of a security. However it is essential to clarify that they are not 100% reliable.
In practice, to read a linear stock market chart, it is advisable to focus on the symbol at the top left, indicating the company code; below you can find the date and prices of the stock. The chart will provide the prices of the stock for that period. To the right of the chart, there is a table, with the quotations: in black the most recent price of the stock is indicated.
Whenever the price of the listed company closes the trading online day, the graph will show one point: by connecting the various points, the graph is obtained. The volumes consist of the number of trades that take place on the market in one day, or in the purchase and sale of each security.
What does it intends for trend in line charts?
One of the pillars of technical analysis is represented by the concept according to which the market moves according to a predictable trend, based on trends that can be identified thanks to an analysis (“random walk” theory).
According to Charles Dow (the creator of the famous American stock index, the Dow Jones), the stock trend can be compared to a sea that advances, recedes, and then goes even further, to a point where the process is reversed. . The market is characterized by phases of increasing trend, with rising highs and lows, and decreasing trend phases, with declining highs and lows.
Dow identified three main types of trends …
- The “major” trend, or the main trend (which lasts a few years);
- The “medium” trend, or the intermediate trend (which lasts a few months);
- The “minor” trend “, or the minor trend (which lasts a few weeks).
So far we have dealt with technical analysis, however, in order to properly read the stock charts, it is imperative that we also master the fundamental analysis.
While technical analysis of trading online focuses on price movement, fundamental analysis allows the assessment of the financial health of a financial institution.