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Understanding Charts

An important aspect in understanding the market and making investment decisions is the use of charts. These help us understand things such as trend, history, support and resistance, and more. There are 3 main chart types that a trader can employ. Even if all 3 use the same data to compile their representation, they present it differently visually and in terms of data.

 

Line Chart

Line charts provide the most basic representation of the data, showing the closing prices of an asset over a period of time. Seeing as the closing price is what many traders consider the most significant, this is often sufficient.

 

Bar Chart

The bar chart has more information than the line chart, as it also shows the high and low of the asset in addition to the closing price. Each data point is represented with a vertical line. The open and close are prices are depicted with a horizontal dash on the vertical line. The differences in the dashes allows us to see if the stock went up or down in value. In addition to this, many times the bars will be colored to assist us: red for when a stock went down, and blue or black if the stock went up.

 

Candlestick Chart

The candlestick chart can often seem the most intimidating, though it is quite similar to the bar chart and, once deciphered, and invaluable tool. Here again we have data points presented in vertical lines, showing us the range of prices an asset went through in a given time frame. Another similarity is the use of color on the chart to depict the movement. It is important to note that different systems may use different color sets to represent the movements, and so what is important is identifying the correlation. If the stock's closing price exceeds the opening price (meaning it went up) the candlestick will often be clear or white, while if it went down it will be filled with a color, typically black or red. Other times, it may not be clear at all, but rather use two colors to depict movement, as can be seen here. 

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