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Security Analysis and Portfolio Management
Notes investor is to draw on graph on logarithmic paper a series of vertical lines, each line
representing the price movements for a time period – a day, a week, or even a year The
vertical dimensions of the line represent price; the horizontal dimension indicates the
time involved by the chart as a whole. In a daily chart, for example, each vertical line
represents the range of each day's price activity, and the chart as a whole may extend for
a month. For this, extend the line on the graph paper from the highest transaction of each
day drawn to the lowest and make a cross mark to indicate the closing price.
Figure 6.4: A Bar Chart
3. Candlestick Charts: The Candlestick chart is similar to a bar chart, but it differs in the way
that it is visually constructed. Similar to the bar chart, the candlestick also has a thin
vertical line showing the period's trading range. The difference comes in the formation of
a wide bar on the vertical line, which illustrates the difference between the open and close.
And, like bar charts, candlesticks also rely heavily on the use of colours to explain what
has happened during the trading period. A major problem with the candlestick colour
configuration, however, is that different sites use different standards; therefore, it is
important to understand the candlestick configuration used at the chart site you are working
with. There are two colour constructs for days up and one for days that the price falls.
When the price of the stock is up and closes above the opening trade, the candlestick will
usually be white or clear. If the stock has traded down for the period, then the candlestick
will usually be red or black, depending on the site. If the stock's price has closed above the
previous day's close but below the day's open, the candlestick will be black or filled with
the colour that is used to indicate an up day.
Figure 6.5: A Candlestick Chart
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