Technical Analysis/Type of Charts

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Charts[edit]

Charts are the heart and soul of technical analysis. Many experienced traders wax poetically about how 'charts talk to them' and make bold statements about the future direction of a stock based on examination of price history. Yet to the untrained eye, these same graphs are but squiggles across a page with no discernible order. Beneath the surface, it is actually an accumulated history of human behavior, a voting mechanism of sorts. The technician is able to see how individuals reacted to earnings reports, economic conditions, and political ramifications over time. There is no need to re-examine those events, since informed market participants have cast their votes as prices over time reflect different expectations.

The basic data on which the chart is drawn are

  1. Date
  2. Price Band (Open, High, Low & Close)
  3. Volume

Above data is published by the stock market on their websites and the data is also available on various other commercial portal like google and yahoo. To direct you to few of them following are the links to some of such websites:

  1. Nasdaq - USA
  2. National Stock Exchange - India

A chart represents of the demand and supply of a stock or commodity. The horizontal axis represents time, with the price drawn as a line connecting consecutive closing values. More sophisticated charts will show more detail; bar charts also include the range from high to low, candlestick charts include the open price along with a color and fill which reflects change relative to the previous close. A chartist will examine clusters of these marks and categorize them into behavioral patterns. The nomenclature used depends on the chart style as well as the theory to describe price action. Candlestick charts have become very popular since Steve Nison published Profiting With Japanese Candlestick Charts in 1991. This approach was used to trade rice in late 1600s, and consists of such colorful descriptions such as 'spinning tops', 'evening doji star', '3 soldiers', 'dark cloud cover', or 'hammer'. There are also different ways of filtering out noise and reducing detail - Point and Figure, Renko and Kagi will combine several bars and ignore the time scale axis. What is key to any charting method and classification is the context in which the pattern appears. This is true for all sub-disciplines of technical analysis.

Types Of Charts[edit]

  1. Line
  2. Candlestick
  3. OHLC

- insert line / bar / candle / p&f / kanji chart here -

Tools Used To Make Chart[edit]

There are lot of websites which plots the charts on-line. Since we may want to draw trendlines and other notes on them and would like to refer them at the later stage it is better to have a charting software with you which can help you make your custom chart.

Once you have downloaded the data (mostly they will be in csv format) you need the tools to plot the chart.

There are lots of software available to prepare charts. Few of them are listed below.

  1. OpenOffice.org spreadsheet has a native stock charting category in its chart section.
  2. Qtstalker supports many plug-ins for technical indicators
  3. AIOTrade (formerly Humai Trader Platform)

Sample charts from above software:

Candlestick chart from the Qtstalker

Qtstalker candlestick chart.png