Why different types of charts are used in technical analysis



Types of charts

Chart inspection is the basic form of technical analysis. In technical analysis charts, we can customize the time frames in the charts. In a daily bar chart, every bar shows the price behavior for a complete day. We can change time frames to weekly, monthly, or quarterly to view long-term charts. We can also identify different trends in different time frames.

The major types of charts that people use are line charts, open-high-low-close (or OHLC) charts, and candlestick charts.

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Line chart

A single line that connects stock prices is called a line chart. A line chart is the simplest type of chart.

bar and candle 1

OHLC charts or bar charts

A chart that has open, high, low, and close data sets in a vertical line in the form of a bar is called a bar or OHLC chart. An OHLC chart is shown above.

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Candlestick charts

A chart that has open, high, low, and close data sets in a candle form is called a candlestick chart. A candlestick chart is shown above.

Bar and candlestick charts are widely used by technical analysts because the open, high, low, and close data gives a quick overview of the day’s market psychology and trading activity.

Candlestick charts and bar charts show the same thing. However, candlestick charts are easier to read. They’re more visually appealing compared to bar charts. There’s also a branch of technical analysis that studies candlestick or bar charts’ shapes and patterns. The branch studies the charts in order to forecast future price movements.

We’ll discuss these shapes and patterns later in this series.

Applying chart concepts

The chart concepts can be applied to stocks like Duke Energy (DUK), American Electric Power Company (AEP), Southern Company (SO), and Exelon Corporation (EXC). These stocks are part of the Utilities Select Sector SPDR (XLU). XLU is an exchange-traded fund (or ETF) in the power sector.

Visit the Market Realist Power Utilities page to learn more about the companies mentioned above.


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