A technical stock chart is an important tool for traders and investors alike. These charts are used to conduct a Technical Analysis, or the practice of predicting or projecting future financial price movements. Although it is not absolutely accurate, the practice of chart analysis can help investors anticipate what will happen to prices in the coming weeks or months.

Popular Types Of Technical Stock Chart

There are a number of charts used in technical analysis, but the most popular are line charts, bar charts and candlestick charts.

Line chart - this type of chart is often favored by investors and traders who pay more attention to the closing price level than the open, high and low. A line chart is also used when data points for open, high and low are unavailable.

Bar chart - considered by most analysts as the most popular among the lot, the bar chart requires the high, low and close data to form the price plot for each period. A daily bar chart represents the high, low and close for a particular day, while weekly bar charts represent each week based on Friday’s close.

Candlestick chart - for this type of technical chart; the open, high, low and close data are all required. It is based on the open price, the close and the high and low of the intraday trading. Weekly candlestick charts represent Monday’s open and the weekly high-low range.

Who Prefer Which?

When it comes to chart preference, stock traders are inclined to favor charts that represent daily and intraday data to predict short-term price movements. Short-term data offers the advantage of more details but also carries more volatility. For investors, weekly and monthly charts are preferable since identifying long-term trends and long-term price movements are more relevant to their investments. Others involved in the stock market business use a combination of short term and long term charts to analyze price movements.

Analyzing The Charts

There are several factors that should be taken into consideration when it comes to stock chart analysis. First is the overall trend. A market analyst should be able to identify the overall trend represented by the chart. This should be further supported by the identification of the areas of congestion or previous lows in relation to price market support levels. The areas of congestion and previous highs above the current price mark, and the momentum of the prices, are also factors necessary for an effective chart analysis.

Each type of technical stock chart has its advantages and disadvantages and one type is not necessarily better than the other. Analysts choose their own chart form depending on their needs and their main focus.

    Posted in Stock market from Investor on 15. Nov. 2008