Tuesday, October 28, 2008

Line chart, bar chart, or candlesticks

With all the different ways to view stock charts today it can get kind of confusing. Figuring out whether to use a line chart, bar chart, or candlestick chart is the first step.

Let’s compare them. Bar charts and candlesticks give you much more information than the simple line chart. They tell you the open and closing price along with the high and low of the day.

Even though they both give off the same information I prefer the candlestick because it is much easier to read. If you get use to the bar charts it will probably be just as easy. But for new traders the candlestick charts are much easier to read.

The line chart is much different than the other two. It plots the closing price of each day and then just connects the dots. This type of chart weeds out all of the noise that you get from both bar and candlestick graphs.

Line charts make it easier to identify support and resistance along with chart patterns. Because of this they make it easier to make quick decisions on whether the stock is bullish or bearish.

But for all of these advantages line charts make it harder to determine where to set stops. For instance you find a stock that has just hit support and you expect it to come up.

Looking at your line chart you buy it and place a stop 1% below support. However with a candlestick chart you are able to see the highs and lows of each day. You can determine how wide the daily trading range is.

Maybe the stock is very volatile during the day. In this case you may want to set your stop 2 or 3% below support so you do not get kicked out of a trade too early.

The daily trading ranges can be important to determine where to pace your stops. That is something very important that the line chart does not provide.
In the end it is up to each individual trader to determine what type of chart fits them best.

For more information about stock chart settings visit http://www.stocks-simplified.com/stock_chart_settings.html

For more information about the stock market visit http://www.stocks-simplified.com

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