Understanding the price charts and how to develop them is vital for determining reading and applying technical indicators. Even though charts come in many forms, in reality, only the three most implemented are the line chart, the bar chart,and the candlestick chart are the most favored because of the reliability of the information it conveys.
A line chart is not used that much anymore. It was the basic chart used prior to the advent of the personal computer. Stock price data was registered manually, and only closing prices were registered. The line chart was created connecting the closing prices.
Pertaining to a bar chart, the highest together with the lowest prices in a specified period (minutes, hours, days, weeks, or months) tend to be connected with a vertical bar. The starting price is definitely represented by just a tick mark at the left side; the closing price is displayed by means of the tick mark at the right side. The lower side and the upper side of the vertical bar represent the lowest and most expensive prices involving the interval, respectively. The bar chart is used mostly in Western technical analysis.
The beginnings of candlestick charts was in Japan several hundred years ago. It was not until 1990 that the world knew about it when it was introduced in his book Candlestick Charting Techniques (Nison, 1991).
Candle charts obviously illustrate price pattern in a trading time period. The body of the candle represents the advance between the beginning and also closing price. If the price ends above the beginning price, the candle body is white. If the stock price closes below the opening price, the candle body is filled (black). A candle can be either a body or a body with long or short wicks, called shadows that hit to the highest and lowest prices through the trading period. The understanding of candle-chart patterns is a study unto itself.
When examining price movements of 100%, it is recommended to implement logarithmic scales on the vertical price axis of the chart. If you are using a scale of five points on a linear scale, a price change from $15 to $30 comprises three divisions, whereas a price variation from $30 to $60 involves six divisions. This indicates that the distance on the vertical axis from $30 to $60 is twice as large as the one from $15 to $30. On the other side, a price move from $15 to $30 or from $30 to $60 is exactly equal to the same 100% price increase. When the price moves from $15 to $30 or from $100 to $115 is considered the same comparably on a linear scale. Evidently, this really does not offer for a good graphic opinion related exactly to what the price change undoubtly provides.
When looking at a price move from $15 to $30 is considered a 100% price increase, but going from $100 to $115 is make equated to only 15% boost. To have the same range on the vertical scale representing identical percent difference, you can easily make use of logarithmic scaling. This signifies in particular that the distance on vertical axis from $30 to $60 is right now the exact similar as the one from $15 to $30 specifically a 100% rise. This improves the visual impact of looking at the chart.
The moment there are sizable price movements, using a linear scale will constitute a disadvantage. It is basically not possible to sketch a linear scale underneath a upside trend or possibly a downside-moving trend. However, the majority of people use the linear which is acceptable provided that the move is within a very small price range. Logarithmic scale is more important when it comes to long-term time ranges such as weekly and monthly charts, mainly because the price changes are more noticeable. The best solution to this situation is to apply logarithmic scales of price movement always.
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