Options Trading For Dummies, 4th Edition
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Price data is used in charts to give you a view of market trading activity for a certain period. The following list gives you the lowdown on some of the chart types you might encounter while you track your investments:
  • Line chart: This chart uses price versus time. Single price data points for each period are connected using a line. This chart typically uses closing value. Line charts provide great “big picture” information for price movement and trends by filtering out the noise from the period’s range data. One advantage to line charts is that more minor moves are filtered out. A disadvantage to line charts is that they provide no information about the strength of trading during the day or whether gaps occurred from one period to the next.

  • Open-High-Low-Close (OHLC) bar chart: This chart uses price versus time. The period’s trading range (low to high) is displayed as a vertical line with opening prices displayed as a horizontal tab on the left side of the range bar and closing prices as a horizontal tab on the right side of the range bar. A total of four price points are used to construct each bar. OHLC charts provide information about both trading period strength and price gaps. Using a daily chart as a point of reference, a relatively long vertical bar tells you the price range was pretty big for the day.

  • Candlestick chart: This chart uses price versus time, similar to an OHLC chart with the price range between the open and the close for the period highlighted by a thickened bar. Patterns unique to this chart can enhance daily analysis. Candlestick charts have distinct pattern interpretations regarding the battle between bulls and bears that are best applied to a daily chart. They also incorporate inter-period data to display price ranges and gaps.

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About the book author:

Joe Duarte, MD, is a financial writer, private investor and trader, and former money manager and president of River Willow Capital Management. He's been quoted in Barron's, Marketwatch.com, and The Wall Street Journal. Learn more at joeduarteinthemoneyoptions.com.

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