If you’re already an investor or planning to invest, it is essential to know how to read stock market charts. Financiers and economists have developed several types of charts that specialize in giving certain information about the stock or index you’re looking at. With these tools, you can determine the companies and funds that best fit your investment plan. But, of course, you must know what to look for in stock market charts to determine it.
- The line chart. This is the simplest of stock market charts. When you see the tiny Dow Jones chart in the newspaper’s business section, it is usually the line chart. The axis from left to right, called the x axis, measures time. Usually, this is done by day, week, month, six months, or year. The axis from top to bottom, called the y axis, measures the price of the stock. The line chart is the easiest way to determine a stock’s basic past performance.
- The candlestick chart. Candlestick charts were developed by the Japanese, and are heralded by stock market experts for the information they give. Candlestick charts work much like a line chart. For additional information, they use a box of solid color to indicate whether the stock is up or down in a given period, and have lines shooting off the top and bottom of each box to indicate the stock’s high and low price for the given period. With this system, candlestick charts convey a large amount of information with one simple image.
- The bar chart. As a stock market chart, the bar indicates pretty much the same information to investors as a candlestick chart. Instead of a solid box with color, though, the bar is simply a line that shows the high and low. Each bar has a notch on the left to indicate opening price, and a notch on the right to indicate closing price.
- The reference chart. The reference chart is, at first glance, a line chart. But at the bottom there is a bar graph that displays the levels of volume, or amount of shares traded, for the given period of time. Volume is seen as important information to more advanced investors using technical analysis. It can help to indicate whether precedents from past performance will be broken.