Learn to understand Financial Charts - Line Chart Overview

Learn to understand Financial Charts - Line Chart Overview
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The stock charts are in use for many years, more than a century. The prime use of the charts is to identify the behavior of the stock market. Stock charts are used to identify the trends in the markets, trend changes in the markets, the price variation of the stocks, the volume of stocks traded and many other such critical measures. Support levels and resistance levels of the markets are the key indicators for the traders to take appropriate decisions on buying and selling of the stocks.

The Line Chart Type

Line chart is a chart type that is regularly used in all kinds of financial markets. These charts are very simple to make and very easy to read. It is very easy to understand and may help the enthusiastic investing community to take quick decisions on the trading. The line charts provide basic information on the trend of the market and give a pointer towards the future movements of the stock prices. That said, line charts contain all the primary and critical information on the stock market – often neglecting the secondary data to make the picture clear.

Simple Technique

Line charts are the simplest statistical technique to represent any kind of data. Line charts are widely used in data analysis in all the fields of life including stock markets and forex currency trading market. The technique of line charts took birth with the basic statistical techniques for data analysis. It has a great history of more than hundred years. The line charts have been in use to represent the stock market data for many years. Even without the help of computers and other sophisticated accessories investors and businessmen were using the line charts for analyzing the prospects in the markets. A ruler and pencil were enough for them to draw the simple line charts in a paper. Nowadays the line charts can be drawn in seconds just by providing the necessary data on stock price movements. You can make line charts with many options – deciding on what type of data you find the most important.

Advantages and Problems

The advantage of Line chart over, OHLC chart and the candlestick, is that it only shows one line – making the decision on trends, support and resistance level etc. less complicate and more definite. Line charts are used to represent different features of the stock market including the high or low prices (but not both!) in a trading day or in a trading week or even in a trading month. It can be used to analyze the opening and closing prices for a time period. Basically the line charts are for those investors who prefer to base their decision on only one aspect of certain stock price (open, high, low, close) – neglecting the other factors to simplify the complex picture of stock behavior. This, of course is the danger in thoise charts, as only one aspect is analyzed – sometimes being not the most in influential one.

Main use

Anyway, the line charts can clearly indicate the upward or downward trend of the market. One of the best measure used in identifying the short trends and long period trends are moving averages of the data. Moving average can be 10 day moving average, 60 day moving average or any other type. Moving averages help to eliminate the noise levels or unexpected variations in the market and it provides a consistent and reliable assessment of the stock price movements.

Line charts

Line chart with averages