No matter what type of market you plan on trading, if you expect to be successful as a day trader then you need to have a handle on technical analysis. And, at the heart of technical analysis are charts showing price and other data.
According to technical analysts, charts contain all the information you need in order to make decisions about securities. Stripped down to their bare essentials, charts display price and volume information – but it’s the ways in which they display the information that makes charts so useful.
There are several kinds of charts that technical analysts use: line charts, bar charts, candlesticks, and point-and-figure charts are four of the most popular varieties. Charts can cover years or a single day, and the information contained within can be delineated in terms of months, weeks, days, hours, minutes, or even seconds. Then there are range- and tick-delineated charts, too. This article will provide a basic introduction to chart reading.
A line chart plots the closing price of a stock on the chart, and connects the points with a smooth line. “Closing price” here refers to the price at the end of whatever period is being used – i.e., the price at the end of the trading day if the chart is being delineated by days; the price at the end of the minute if it is a minute-by-minute chart, etc.
The chart in the example at left is a six-month line chart connecting the points of daily closing prices for the stock ticker EZPW. Important note: the stock’s daily trading volume is displayed at the bottom of the chart. The numbers at the bottom of the left side going up to 4 million indicate the scale for the volume bars, and the numbers along the right side indicate the stock’s price per share.