Using price charts traders can forecast future price movements based on analysis of past price movements. Charts are often a preferred choice as they provide a lot of information within a short time.
Looking at them you may be able to determine how the price has moved over a certain period and this information can help you place a successful trade.
Bar chart – It is most common price chart that is used by traders and shows four important trading information that includes opening price, closing price, highest point and lowest point of price on each day of trade.
The vertical data in the chart shows the range on that particular day whereas the horizontal data that points left gives information about the opening price and the line that points to the right gives information about the closing price.
These charts are easy to read and interpret. You may be able to adjust them to any time frame (long and short). It is not necessary that they are based only on time and can be based on price range and volume.
Candlestick chart – The four price related data is reflected in a different manner in this chart. It is divided into two parts or lines. The thin line on the chart is called the shadow line and it represents the price range from high to low.
The second line known as the real body comprises a wider area that can help in determining the difference that exists between the opening and closing price of the underlying asset.
If the closing price is more than the opening price then the real body area is white. Each candlestick on the chart shows the trading that took place in the specified time period.
Line chart – This chart helps in keeping a record of closing price on each day of trade. This information is plotted on the graph on a daily basis and this finally forms a line. The closing price and trend is used to take many important trading decisions.
Point and figure chart – The price of stock is only taken into consideration in this graphical representation. Timing and volume of trade is not considered. The X-line on the chart indicates increase in price or value of stock whereas the O-line indicates that the value has decreased. Traders can make use of these charts to identify reversals in the price trend.
Using price charts can be as simple or complex as you want it to be. You may be able to predict the future price of the stock easily by focusing on the different price movements indicated on the chart.
When you start focusing on the price you may automatically start to focus on the future. Most traders use a combination of charts before placing trading decisions.