Charts are visual representations of the price of a market over a certain time frame. For instance our chart of The Dow Jones Index below measures the indexes price over a 4 month period. For technical analysis line charts are pretty basic and don’t hold enough info to day trade. However the bar and candlestick charts below hold much more info.
OHLC Charts (Bar Charts)
This bar chart is also called an OHLC (Open, High, Low, Close) chart. The vertical line represents the price low and high of the period (1min, 5min, daily, weekly etc…), the tick on the left represents the opening price and the tick on the right is the closing price of the period. Green and red represent prices moving higher and prices moving lower in that period respectively. In our chart example we have a Dow Jones industrial Average daily chart looking out over 4 months – Oct 2010 to Feb 2011. It’s called a daily chart because each bar represents the price action in that daily period (how prices moved higher and lower in that period). It’s not called a 4-month chart, monthly chart or yearly chart, because it’s the period represented by the bar or candlestick that names the chart.
Below is the Candlestick chart, which shows the same info in a different format. As with bar charts, candlesticks represent a specific period in time. If we’re looking at a 1-minute chart, they represent price action in that 1 minute. Similarly, if we’re looking at a longer-term chart, say looking out over 5 years, we may look at a weekly chart. Now each candlestick will represent the price action over a 1-week period. The chart will now consist of many of these weekly candlesticks stretched out over 5 years. In our course we’ll be using candlestick charts.
Linear and Logarithmic Charts
Most charts you will see are Linear charts like the Candlestick chart above. Here the spacing between the numbers is equal and this is the kind of chart we're most used to. In Logarithmic charts the distance between the prices on the Y axis is measured in percentage terms. I.e. The distance between £8 and £10 in our below RBS example is a 25% change. Compare this 25% change to the percentage change between £12 an £14, which is only 16.67%. The axis spacing therefore reduces the higher the price goes.
Some people prefer log charts if they're incorporating trend lines into their charts as they can more accurately reflect the price acceleration and deceleration. This can be quite useful when looking at the longer term, but for the short term Linear charts are probably more useful.
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