Page 208 - DCOM507_STOCK_MARKET_OPERATIONS

Unit 10: Technical Analysis

Notes
Figure 10.3: A Line Chart

Bar Charts

Most investors interested in charting use bar charts - primarily because they have meanings
familiar to a technical analyst, but also because these charts are easy to draw. The procedure for
preparing a vertical line or bar chart is simple. Suppose an 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 10.4: A Bar Chart

Candlestick Charts

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

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