Understanding technical indicators begins with the visual representation of stock prices in a chart. Even though there are generally several charts of different types, the actual ones applied most of the cases generally are the line chart, the bar chart and the candle chart which is the most popular one simply because it provides the most information and facts.
A line chart is not used that much anymore. It was the basic chart used prior to the advent of the personal computer. Stock price data was registered manually, and only closing prices were registered. The line chart was created connecting the closing prices.
Regarding a bar chart, the high together with the low prices within a predetermined period of time (minutes, hours, days, weeks, or months) can be joined with a vertical bar. The starting price might be displayed by way of a tick mark at the left side; the fnal price is represented simply by the tick mark at the right side. The bottom and the top of the vertical bar symbolize the cheapest in addition to highest prices involving the span, respectively. The bar chart is put to use mostly in Western technical analysis.
The candle chart has its origins in the Far East. Steve Nison introduced the candle chart to the Western world in his book, Japanese Candlestick Charting Techniques (Nison, 1991).
Candlesticks basically outline price variations that occur during a specific time.the candlestick body display the price change that occurred between the market open and close during the given time span. The candle is shown white if the closing price is higher than the opening price, but shown dark when the closing price is lower than the opening price. Candlestick can be shown in a body or a body with short and long wicks. When it comes to Candlestick charts, the subject is huge and needs a separate study.
It is recommended to use the logarithmic scales on the vertical price axis when looking at 100% price movement of the chart. Consider that, when using a scale of five points on a linear scale,a price change from $15 to $30 comprises three divisions, Meanwhile a price variation from $30 to $60 involves six divisions. This is an indication that the distance on the vertical axis from $30 to $60 is double as large as the one from $15 to $30. On the other , a hand price move from $15 to $30 or from $30 to $60 is exactly equal to the same 100% price increase. When the price moves from $15 to $30 or from $100 to $115 is considered the same comparably on a linear scale. Unfortunately, this really does not offer for a good visual representation of what the price movement offers.
Going from $15 to $30 equals a 100% price increase, but moving from $100 to $115 equals only a 15% multiply. To have the very same distance on the vertical scale representing identical percent changes, you can easily make use of logarithmic scaling. This particular signifies that the distance on the vertical axis from $30 to $60 is at this point the similar as the one from $15 to $30, specifically a 100% price boost. This shows a a whole lot visual impression on charts with significant price change.
In the event that there are massive price moves, a linear scale tend to be a negative aspect. It could be merely not feasible to sketch a linear trend line below an upward trend or perhaps down-moving trend. Having said that applying a logarithmic trend line most likely offer you the aid level you need to analyze the chart. Even so, the majority of peoplewill employ linear scaling on everyday price charts, which is usually fine on condition that the price moves within limits. More often, logarithmic scaling is usually ascribed to longer-term charts, such as weekly or monthly charts, simply because the price changes are much more significant. The ideal solution is to make use of logarithmic price with logarithmic trend lines all the time.
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