3 Popular Stock Charts To know: Line Charts, Bar Charts, Candlestick Charts

contributed by Jeffrey Lin

Difficulty Level: 1/4 (Rookie)

We don't have to be Van Gogh to make money from pictures. We don't even have to be art collectors. Most of us can recognize a picture of a stock chart just by the squiggly lines up and down. We can easily see a general trend up (from bottom left to upper right) or a general trend down (from upper left to bottom right). Same thing with a political campaign. If a candidate continues to gain more votes, the chart of their votes continues to trend up so you know they're increasing their lead. Fact is we see pictures of charts everywhere on TV, in magazines, for sports stats, and political campaigns. We're already experts at understanding a lot of information just from a chart or graph. A skill we can all apply to make money both trading and investing with a stock chart!

What most people don't know is there are several ways a stock's price can be graphed on a chart! Since the financial crisis in 2007, the DOW Jones Industrial average can be up or down hundreds of points within a single day, so which stock price is graphed is really important! On TV and in magazines we're used to seeing pie charts, bar charts, and line charts. For stocks (as well as futures, forex, bonds, mutual funds), the three basic charts are line charts, bar charts, and candlestick charts.

1.  Line Charts.  Like the name says, line charts are lines connecting dots of the last price, aka "closing price," of the stock for that period.  Each dot or data point represents a period.  Most investors are used to seeing daily charts where the period that dot represents is a day.  There are also monthly charts where each data point represents a month, hourly charts where each data point represents an hour, and other ways you can slice and dice time.  Line charts only show the last price for that period and ignore the period's opening price, high price, and low prices.  If you're using line charts, you're putting all the emphasis on the closing price with the idea that this last price where investors bought or sold is critical because it is the last bet so they have to have conviction with their decision.  If the period you're using with line charts is the daily chart, the closing price carries significance because investors are risking whatever news or natural disasters that may change the world overnight.

2.  Bar charts.  These bar charts aren't drawn the same way you're used to seeing on an Excel spreadsheet or histogram.  Unlike line charts, bar charts for stocks include the stocks' opening price, high, low, and closing price.  A center line is drawn from the high price to the low price, with a hash mark on the left for the opening price and a hash mark on the right for the closing price.  Including the high and low prices allows you to see the range of the stock for that period, whether if its a day or week or whatever.  Long bars where the high and low are very far apart shows the stock was all over the place during that period, i.e. being very volatile, and can alert you to big news or investor confusion.  If investors were pretty sure what the price of the stock should be, there wouldn't be a big range where it looks more like investors taking guesses.

3. Candlestick charts (aka Japanese Candlestick charts). These actually look more like the usual bar charts we're used to seeing on TV and in magazines. The body of the candlestick is the bar, a rectangle drawn from the open to the closing price. If the stock ended (closed) higher than when it opened, the rectangle body is hollow. If the stock ended (closed) lower, the body is filled in solid. Vertical lines are drawn from the body to the high and low, so candlestick charts also show the range of the stock. These are the wicks of the candle. Candlestick charts emphasize the difference between the opening and closing price for the stock. So by using rectangles that take up more area, candlestick charts are popular with traders to help them more easily see patterns and a stock's condition.

Line charts, bar charts, and candlestick charts are so common you can find them on any stock chart website such as FreeStockCharts, Barcharts.com, FINVIZ, or Yahoo! Finance. They may show you line charts at first, but there's usually options to switch to one of these other chart views. Try it out and see what more you can learn about a stock's price and moves!