Although, there are many types of charts that can be used based on our own preference and ease of use, however, some of them are popular and most widely used. Mentioned below are the widely used charts along with examples.
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- Line Chart: The line chart is formed by series of datapoints connected using a straight line. As is the case with most of the charts, a line chart is used to visualize data that changes over time. In case of stock market of financial world, the datapoints used to plot line chart is closing price for the time range. For example, if we are looking at a 1 minute chart, then all the closing datapoints are placed in a sequential manner against time axis and are connected by straight line. The same can be seen in the picture below.
As can be seen in the figure above, the horizontal axis is time and the verticle axis is price. The dots are connected using the lines and a line chart is formed. A sweet and simple chart to visualize how prices have performed each our for a given day. The line chart is the most basic chart and does not provide much information. In the trading community, there are more sophisticated and powerful charts that traders prefer to use. We will look at them as we proceed further.
2. Bar Chart: A bar chart represents the same data as represented by any other chart (for example line chart) using rectangular bars. However, there are some differences from the line chart and that is worth noting down. The first point that I would like you to notice is the small tick at the left and right of the bar chart. Also, note the changes in colors as red and green. The small tick to the left of the bar chart is marked as open price and the tick at the right side marks the closing price for that duration. If the closing price is higher than the opening price, the color of the bar is green else red. As with any chart in the stock market, a green bar represents bullishness or buying pressure and a red bar represents bearish or selling pressure.
3. Candlesticks: Candlesticks are the most famous and widely used graphs in the stock market. These were developed by Japanese traders and can represent a lot of information in a single candle. In the stock market, we try to analyze and guess the emotions of the market participant and make our trading decisions based on those analyses. Candlesticks are an excellent way to analyze such data. Remember, in the stock market, one can make money only when he/she goes with mass decisions. Below, I have given an example of a candlestick chart. This topic is so vast that we will dedicate an entire section to candlesticks. As with other charts, the Green candle represents buying pressure and the Red candle represents selling pressure.
4. Heikin Ashi Chart – Heikin Ashi charts are again developed in Japan. The look and feel of the Heiken Ashi chart are similar to the candlesticks chart however there is a significant difference between Heiken Ashi and candlestick charts. Heikin Ashi charts plots smooth price activity by calculating average values. These types of charts are used by traders to remove noise from the candlestick charts to make a trading decision. Please note that because Heikin Ashi charts are plotted using average price, hence opening and closing price might not be real and can be a different price than the stock real price. Mentioned below is a view of the candlestick and Heikin Ashi chart for the Nifty 50 performance. Note how the candlestick chart has green and red candles however the Heikin Ashi chart has all green/red bars as it is plotted using average price, hence reducing noise.
With this, we came towards the end of this section on chart types. It is highly recommended to visit my free video sections to understand these topics (youtube). It is rightly said that a picture is worth a thousand words and when we learn something by visualization, then it lasts long and makes our concepts stronger. Happy Learning!!!
Don’t feel like reading the long content?? Here is a short youtube video containing the same information.
Headhonk 