Price charts are primary tools for technical analysis that give traders a visual representation of price action. Line, bar, and candlestick charts each have their own unique characteristics in illustrating price action that may help serve particular trading styles.
A line chart’s strength comes from its simplicity. The single line chart is not cluttered or busy, and is relatively easy to read. Typically, the line represents the security’s closing price for the time period selected. Since it only shows one price type at a time, it may not show the whole picture of the security’s price action. There are other chart types that show all of this information in a more simplified view.
The bar chart’s strength is that it provides a simplified view of price action. In a bar chart, there are “bars” that display the high, low, open and close for each time period.
The top of each vertical bar represents the highest price the security traded during the period. The bottom of each vertical bar represents the lowest price the security traded during the period. The closing price is represented by the horizontal line to the right side of the bar. The opening price is represented by the horizontal line to the left side of the bar.
With bar charts, traders can get a feel for the security’s price action.
Similar to bar charts, candlestick charts represent the price action with a “candlestick” to help traders see the high, low open and close for the time period.
The lines above and below the candlestick are called “shadows” or “wicks,” and their ends represent the highest and lowest prices that the security traded during that period. If a stock opened higher than it closed, the candlestick body would be red. In such case, the opening price would be at the top of the candlestick body, and the close would be at the bottom. On the other hand, if a stock opened lower than where it closed, the candlestick body would be green. The opening price would be at the bottom of the candlestick body and the close would be at the top. Candlestick charts are yet another way to view the price action of a security for a given timeframe.
Each style of price chart emphasizes a different aspect of price action. Sometimes more information is desired, while other times, perhaps less. Many traders will develop a preference for one style over another, but all have potential merit.