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Basic Types of Price Charts
Price charts provide the fundamental building block in the analysis of market action. The use of charts and technical indicators provide the average investor with the only real edge available in trading the markets.
As you become familiar with viewing and using charts, readily identifiable patterns will become apparent that may immediately give you a notion of what is happening in the market.
See the discussion of the use of Trendlines and Three Simple Rules.
The following basic types of price charts are the most commonly used. These charts provide the "background" or "foundation" for most of the common indicators. In most cases indicators are shown superimposed on the price chart itself or in a separate chart below the price chart. Most of the analytical tools compare the action of an indicator against that of the price.
Bar: each bar represents a day's trading showing the lowest to highest price, open & close. This is the most common type of chart used. Time is factored into the price movements. Volume charts often accompany bar charts.
Line: the line represents the closing prices only for a given time. This tends to smooth out daily fluctuations in price, sometimes giving a better picture of the overall trend.
Point and Figure: shows prices changes with X columns for rising prices and O columns for declining prices. Unlike the other basic charts, time itself is not a factor. Point and figure charts plot only the direction of a price move and the change in value. Proponents believe this gives them a clearer view of the underlying actions of supply and demand.
Candlesticks: use a wider bar to represent the difference between open and closing prices - black for a decline and white for a rise. Patterns of black versus white (declining vs rising markets) readily become apparent with candlestick charts.
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