TheTechnical Analysis Chart- Line Chart
Technical analysts look at the price charts to analyze the stock and to know when to buy and sell the stock. To plot the stock chart there need to be some price points. Continue reading to find the points:
- The open is when the markets open to trade. This is the price at which the market opened
- The high is the highest price that the stock went to in the time period
- The low is the lowest price point till where the stock went during the time period
- The close is where the price closed for a particular time period. This is an important price and you get to know the strength of the price at this stage. The closing price reflects the sentiment of the market
All these four points get plotted on the technical analysis chart to form a graph. The visual representation of the events of the market lets you take an informed decision.
The open, high, low and close of the market summarizes the trade completely. The chart displays the information and without a chart understanding, these prices could become very complex.
Theregularchartshowever does not work because of the plot just a single data point that is not suited for the analysis.
Charts used in technical analysis
The common charts that are used by technical analysts are the line chart, bar chart, and the Japanese candlestick charts. TheJapanesecandlestickchart is the most commonly used of the three because of its various benefits.
The line and the bar chart
The line chart is the basis of the charts and this chart uses only a single data point. The line chart only plots the closing price of the stock and dot is placed at each closing price. This is then joined to form a line.
So if the time period is 60 days then 60 closing prices are drawn to form a line.
The lien chart can be formed for various time periods. These can also be drawn for all the securities.
Line charts are simple to use and it just takes a glance to understand what the trend of the stock is. The disadvantage of the line chart is that the chart fails to give any additional details to the analyst. The line chart also ignores the open, high and low price of the stock.
The line chart is thus not used in the technical analysis because of its disadvantages. This led to another chart pattern that was seen as a better alternative to the line chart. This is the bar chart.