Intro to charts and candlesticks
(This is the 3rd lesson on a series of preview chapters for a course that is due to be released soon. Please read the disclaimer before proceeding. If you found this lesson useful, don’t hesitate to share it and please follow us on all our social media for more updates!)
Outline of today’s lesson, we will be covering:
- Types of charts
- The Line chart
- The Bar chart
- The Candlestick chart
- Colors of the chart
- Where to view charts
- To sum up this lesson
Types of charts
Charts are what we will be looking at to find out how a stock is doing. It is able to give you several information like the price of the stock, direction the stock is moving towards and the total volume traded on the day itself. You can also add indicators to help you see if the stock is bullish or bearish.
There are many different kinds of charts but for today we will just be looking at 3 types of charts. The line chart, the bar chart and the candlestick chart. We will also be explaining about opening, closing and the high and low for each day.
The Line Chart
The line chart is the most basic of all the charts. It only uses the daily closing price of the stock. A line is drawn through and connected to all the closing prices to show the investor the general trend of the stock. The problem with the line chart is, you are not able to look at the trading range for the day.
Example of a line chart
The Bar Chart
The bar chart or also commonly known as the OHLC (Open High Low Close) is a chart that shows the daily open, close and high and low for the day. Using the axis on the right side and looking at an individual bar. Let’s look at how a bar chart displays this information.
Given the following information
A stock opens at $28 and closes at $34. Its highest price for the day is $35 and the lowest price is $26. It will be represented as follows
- The left horizontal line shows the opening price for the day.
- The right horizontal line shows the closing price for the day.
- The line at the top shows the highest price the stock reached in the day.
- The line at the bottom shows the lowest price the stock reached in the day.
If the low for the day is the same as the open you will not see the lower line. (Meaning 28 is the opening price and the lowest the stock went for the day)
If the high of the day is the close of the day, you will not see the upper line. (Meaning 35 is the closing price and the highest the stock went for the day) *This will be shown in the candlesticks later.
Example of a bar chart
The Candlestick Chart
The candlestick chart comes from the Japanese. It was used by them in rice trading a long time ago. It is similar to the bar chart in the sense that it also shows the open, close and high and low for the day.
The upper wick of the candle shows the high of the day, while the lower wick of the candle shows the low of the day.
A green or white candle is a bullish candle. This means that the closing price for the day is higher than the opening price. The top of the candle is the closing price and the bottom of the candle is the opening price.
A red or black candle is a bearish candle. This means that the closing price for the day is lower than the opening price. The top of the candle is the opening price and the bottom of the candle is the closing price.
Example of a candlestick chart
Colors of the charts
For the bar chart and the candlestick chart, sometimes they tend to be in 2 different colors. On days when the closing price is higher than the opening price, it will be signified by a green candle or bar. This is a bullish sign as prices went up.
On days when the closing price is lower than the opening price, it will be signified by a red candle or bar. This is a bearish sign as prices went down. Certain charts may also use black and white to signify bearish and bullish candles.
Some candles have no upper wicks or lower wick because the open or close are the same as the high or low for the day. This also applies for bar charts.
Where can I view charts
Enter a ticker symbol of a company and look for “interactive charts”. Then head over to chart setting, line type to select the kind of chart you are looking for.
Another website that I like to use is stockcharts.com. At the create a chart selection, enter the company name or ticker symbol. At the chart attributes, under type, select the type of chart you want to look at.
I personally like to use candlestick charts as I find it easier and quicker to read for getting information from the chart. Some brokerage also offers their own charting software or platform for you to look at charts.
To sum up this lesson
- We covered 3 kinds of charts today. Line, bar and candlestick.
- Bar and candlestick charts show the open, high, low and close for the day.
- A bullish candle is a green or white candle. It means the closing price is higher than the opening price for that day.
- A bearish candle is a red or black candle. It means the closing price is lower than the opening price for that day.
- You can use the ticker symbol of a stock to look at its chart.