Chapter -2 Types of Charts in Technical Analysis

Technical Analysis Understanding Charts stock investing buy stocks stock trading
Technical Analysis Understanding Charts stock investing buy stocks stock trading

Charts are Considered to be the Foundation of technical analysis. A Technical Analyst believes in following saying –

” A picture is worth thousand words “

In technical analysis, charts have similar meaning to the charts we use in presentations like pie charts, graphical charts, area charts, column charts etc. just the name and analogy is different. In language of Technical Analysis, a chart is simply a graphical representation of a series of prices over a set time frame.



For example, a chart may show a stock’s price movement over a one-year period, one-month period or even for a single minute.

Each point in the charts have a definite meaning. Before we study about the charts let’s get acquainted with some basic terminologies.

We know that, stock market opens at 9:15 AM and closes at 3:30 PM.

On each trading day, a stock generally have four data points which help in analyzing the stock on that given day.

a) Opening Price (O) – the price at which stocks opens at 9:15 A.M.

b) Closing price (C) – the price at which stocks closes at 3:30 P.M.

c) High price (H) – It is the highest price touched by the stock on a given day.

d) Low Price (L) – It is the lowest price touched by the stock on a given day.

In this chapter, ‘O’ will be used as Open Price of the stock, ‘H’ will be used as High Price of the stock, ‘L’ will be used as Low Price of the stock, ‘C’ will be used as Close Price of the stock.

Now let’s get back to the Charts.

In technical analysis there are Four types of charts :

  1. Line Chart
  2. Bar Chart
  3. Candlesticks Chart
  4. Point and Figure charts

1. The Line Chart:




The most basic of the four charts used in technical analysis is the line chart because it represents only one data point that is the closing prices of a stock over a set period of time. The line is formed by connecting the closing prices over the particular time frame.

A line chart’s strength comes from its simplicity. It provides an uncluttered, easy to understand view of a share’s price. However, Line charts do not provide any information of the trading range for the individual data points of the stock such as the high, low and opening prices. However, just because of the popular belief that only the closing price is considered to be the most important price in stock data compared to the high and low for the day and this is the reason it is the only value used in line charts.

Lline Chart Technical Analysis stock investing buy stocks stock trading online

2. The Bar Chart :




Bar charts are one of the most popular charts in technical analysis. The Bar chart is just an extension of line chart with several number of data points attached to it as compared to line chart which have only one data point i.e. closing price of the stock. Whereas in Bar chart it consists of 4 data points of a stock price that is opening price (O), high price (H), low price (L) and closing price(C).

The Bar chart consist of a High price which is the highest point of the vertical line, the close price which is the right horizontal line, the open price which is the left horizontal line and Low price which is the lowest point of the vertical line.

The Bar chart Technical Analysis stock investing buy stocks stock trading

For example, Let’s see how a Bar chart of a stock looks like whose data points are given below :

Open price (O)  = 146

High price (H)   = 160

Low price (L)    = 142

Close price (C) = 156

The Bar chart Technical Analysis stock investing buy stocks stock trading

3. Candlesticks Charts :




The candlestick chart pretty much resembles to a bar chart but differs in a way that in bar chart, the opening and closing prices are represented by a horizontal line where as in candlesticks the opening and closing prices are represented by a rectangular solid bar.

And, like bar charts, candlesticks also rely heavily on the use of colors to show uptrend and downtrend during the trading period. However, the color mostly depends on the what type of charting software you are using.

When the price of the stock goes up and closes above the opening price, the body of the candle in candlestick chart will usually be blue or green in color and are called bullish candles.

If the stock has traded down for the period, then the candlestick will usually be red or black and are called bearish candles.Candlestick Technical Analysis stock investing buy stocks stock trading

Components of Candlesticks :

The middle wide colored part of the candlestick is called the “real body” . This real body showcases the range between the opening and closing price of the stock on a particular day. When the color of the real body is blue/green, it means the closing price of the stock was higher than the opening price. If the color of the real body is red/black, it means the opposite that is the closing price of the stock was lower than the opening price.

Section which look like a thin vertical line above and below the real body are known as “shadows”. Majority of the Technical Analysts call these shadows as wicks of the candlesticks. The shadows are used to show what was the high and low price of the stock on a particular day’s trading. The length of these shadow also gives some information like when the length of the upper shadow of a red colored real body is short, then it shows that the opening price of the stock was closer to the high price on a particular day of trading. Similarly, when a short upper shadow is formed on green/blue colored real body then it shows that the closing price of the stock was near the high price. This relationship between the open, high, low and close price of the stock determines how the candlestick will look like. Point to be noted here is that the real bodies of the candlesticks can be either long or short and their color can be either green/blue or red depending on the stock prices and data points. The length of the shadows can also be either long or short and in some cases, a candlestick can contain only real body with no shadows at all.


Candlesticks are of two types :

1. Bullish candles : Now let’s  put our attention to bullish candle. A Bullish candlestick, consist of 3 components.

  • The Middle real body – The middle wide part of the real body which looks like a rectangular bar in shape connects the open and close price of the stock.
  • The Upper shadow – This is thin vertical line which connects the high point the stock touched on a trading day to the closing price of the stock.
  • The Lower Shadow – This is a thin vertical line which connects the low point the stock touched on a trading day to the opening price of the stock.

Have a look at the image below to understand how a bullish candlestick is formed:bullish candlestick pattern Technical Analysis stock investing buy stocks stock tradingLet’s understand Bullish Candle with help of an example. Let us assume the prices as follows.

Open = 146

High = 160

Low = 142

Close = 156bullish candlestick pattern example Technical Analysis stock investing buy stocks stock trading


2. Bearish Candle : Bearish candle also has 3 components:

  • The Middle real body – The middle wide part of the real body which looks like a rectangular bar in shape connects the open and close price of the stock.
  • The Upper shadow – This is thin vertical line which connects the high point the stock touched on a trading day to the opening price of the stock.
  • The Lower Shadow – This is a thin vertical line which connects the low point the stock touched on a trading day to the closing price of the stock.

This is how a bearish candle would look like:bearish candlestick pattern Technical Analysis stock investing buy stocks stock trading

Let’s understand Bullish Candle with help of an example. Let us assume the prices as follows :

Open = 374

High = 380

Low = 342

Close = 346    bearish candlestick pattern example Technical Analysis stock investing buy stocks stock trading4. Point and Figure Charts:

Point and figure charts has a history of its own as it was one of the first few charts which were used by Technical traders long back ago. However, at present times, the use of this chart is rarely found. In point and figure charts only one data point that is price of the stock is taken into considered and other factor like time and volume are completely ignored. The major use of point and figure chart is to determine the trend of a stock as this chart diminishes some unknown and unwanted factors like insignificant price movements of the stock which can act as a distraction to technical trader in determining the trend. Point and figure charts are of a major help when we want to know the resistance and support levels of any stock.

Point and Figure Chart Technical Analysis stock investing buy stocks stock trading

In next chapter we will learn about Single Candlestick Pattern which is most interesting and favorite part of all Technical Analysts. You will really enjoy learning various aspects of Candlestick patterns.

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