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Why Analysts use Charts?
Stock market analysts use charts to plot the price movements of a stock over specific time frames. It's a graphical method of showing where stock prices have been in the past.
A chart has an x-axis (horizontal) and a y-axis (vertical). Typically, the x-axis represents time; the y-axis represents price. By plotting a stock's price over a period of time, we end up with a "pictorial representation of any stock's trading history," explained Richard Schabacker, the acknowledged father of technical analysis.
Technical analysts rely on a wide variety of charts in their work.
"Line charts" are so named because of the line which moves across the chart connecting the closing prices of a specific stock or market over a given period of time. This type of chart is particularly useful for providing a clear visual illustration of the trend of a stock's price or a market's movement.
"Bar charts" provide a visual representation of the price activity in a stock over a given period of time. On a daily bar chart, for example, a vertical bar connects the highest price reached by the stock on a given day and the lowest. Small lines on either side of the vertical bar serve to mark the opening and closing prices. The opening price is marked by a small tick to the left of the bar, the closing price is shown by a similar tick to the right of the bar. Although daily bar charts are best known, bar charts can be created for any time period - weekly and monthly, for example. Many investors work with bar charts created over a matter of minutes during a day's trading.
"Candlestick charting" is also referred to as "Japanese charting" because of its popularity in that country. As the name implies, a candlestick chart looks like a collection of candles with wicks. The chart contains the identical information of a bar chart (opening and closing prices, highs and lows) but it displays it differently and, many would argue, more effectively.
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