When it comes to technical analysis of stocks, charts and indicators are two things on which an analyst or investor depends. Technical analysis charts are pictorial representation of price movements till date.
Indicators are something we use to study these charts and draw some solid conclusions for our further trading and risking our money. In this article, you will get the basic idea about all types of technical charts that we use in technical analysis of stocks, commodities, currencies or other securities.
Each graph type has its own uniqueness but we can categorise them in two sub-divisons on the basis of time.
- Time dependent graphs: these are graphs that show the price action and trend with respect to time. By reading these graphs, we can find the price range in which the the security was trading during given period of time.
- Time- independent charts : These technical analysis charts also show the price behavior but not wrt time. We can not find the price zone for a stock during a specified period of time.
Charts considering time :
Candlestick charts :
Candlestick charts are most widely used and accepted charts by the trading community. These charts are more than 200 years older and have Japanese origin. As the name suggests, candlestick charts are made up of candlesticks .
Each candlestick provide us 4 major information’s for a given period of time. The time period is selected by us in the trading software If we select time period to be 5 minutes, a new candle will form every 5 minutes. 4 things that each candlestick shows are:
i) Open price : The price at which the stock was hovering when the candlestick started forming.
ii) Close Price : The last price value of stock during the given period of time.
iii) Highest point: This point represent the highest price that the stock prices touched during the given trading period.
As you can see above, candle can have green or red color. Green color shows the increase in price during given period of time while red shows downfall.
Why are candlestick technical charts are great ?
i) There are many types of candles like Hammer candlestick , doji candlestick based on there shape and size. These candlestick than combine to form different candlestick patterns like Evening star candlestick pattern and many more. The patterns guides the investors about possible trend reversals and act themselves as technical indicators.
ii)Being a chart that considers time in its formation, candlestick charts can tell us the market behavior about any period of time.
Line chart :
Line chart is one of the most basic technical analysis charts that we can use for technical analysis. If we join all the closing points of candlestick chart and delete the candlesticks, what we get is a line chart. Line chart only shows the closing points.
We can use the line chart to get an idea of trend (whether it upwards, downwards or choppy) . Being one of the most simple charts, it does not have noise as in candlestick charts and it becomes easier to observe the trend.
Line charts can be used perfectly with support and resistances. If you don’t know what are s&r(support and resistances) levels, just visit tanmarkets.in .
Open-high-low-close(ohlc) chart :
We can consider OHLC charts as the older and boring versions of Candlestick charts. OHLC chart also shows open, close, high and low points. OHLC are also popularly known as Bar charts.
As you can see in the above image that Bar charts are colorless (though, color variants can also be used in modern stock trading platforms).
Bar charts are made with a central line and ticks on both ends. Central line represents the lowest and highest points, left tick marks the opening price while right tick marks the closing of stocks or any other security(which ever you are trading) .
Charts independent of time
I must say, Renko charts are most clean technical analysis charts that you will come across. As it is already mentioned that Renko charts does not show price fluctuations and price action with respect to time, timeline on the bottom axis or the X-axis of chart / graph have not much meaning.
As visible in the above image, Renko charts are made up of equal sized units which we call as Bricks. The name Renko also comes from the Japanese word for bricks, “renga“. Like candlesticks, Bricks are also of two colors which signify the increase or decrease in the price. Height of brick is known as the size of brick which defines the change in change in price. Brick size can be chosen by the analyst and the trading software also sets the brick size wrt to volatility( frequency and size of price fluctuations ) in the market.
Trader can definitely book benefits by using it with s&r levels and trendlines.
Point and Figure chart:
Point and figure (p&f) charts provide a simple, yet disciplined method of identifying current or emerging trends in stock prices.
P&F charts map out the relationship between supply (created by sellers) and demand (created by buyers) at different price levels.
• When demand outstrips supply (more buyers than sellers), stock prices rise and this is depicted by a column of Xs on the chart.
• Conversely, when supply outstrips demand, (more sellers than buyers) prices fall and this is depicted by a column of Os on the chart.
The objective of a p&f chart is to identify the points at which established supply/demand relationships change (these are known as breakouts). These changes will very probably lead to a future significant move in the stock price
- Clear cut signals : what makes p&f charts so popular is the clarity of signal: each stock is either on a buy or on a sell and identifying when this signal changes is well-defined and easy to spot. Stop and target levels are calculated for every breakout signal. Though, these things are true for Renko charts too.
So these are major technical charts that traders use to analyze stocks. Though, technical analysis is not about charts only. You need to learn technical indicators, candlestick patterns and if you perform some fundamental analysis, than it will be a cherry on top. You can always visit Tanmarkets to learn them.