What Is a Line Chart in Stocks? - dummies

What Is a Line Chart in Stocks?

By Greg Schnell, Lita Epstein

A line chart shows the direction of the stock’s closing price. This quickly gives the stock-chart reader a view of the price trend. A trend is established by continually lining up prices side by side and connecting the dots. Because the closing price for a stock is the most important price, the line chart connects closing prices rather than the highs from each day or the lows from each day. The image below shows a basic line chart of closing prices for Bank of America (BAC) from January to June of 2017.

Chart courtesy of StockCharts.com
A line chart.

As you can see, a line chart is a clean, simple chart without a lot of busy information. Line charts are used frequently on financial news television channels like CNBC because it is easier for the viewers to read the data quickly on the screen.

The chart has price labels showing the highest highs and the lowest lows of the closing price. The chart legend in the top left-hand corner tells you the current closing price of $22.82. Quickly scanning the chart, you can see this closing price is in the lower half of the chart. You can also see that the closing price has been oscillating between $22.25 and $24.00 for the last few months (from mid-March to the end of June).

Line charts’ biggest benefit for stock-chart users is that they enable you to view a lot more history, which gives you more insight into the long-term trend for the stock. You don’t lose any information from a shorter-term chart, but you can get a feel for the stock price in a larger context rather than thinking short term.

Below, you can see a multiyear view of BAC from January 2015 to June 2017. The chart shows you that BAC made a huge move in 2016 and has been consolidating those gains for the last six months. At the end of 2016, BAC’s closing price jumped from $14.94 to $23.01 and then consolidated in a range between $21.86 and $25.42. Investors like the longer-term understanding that line charts provide.

Chart courtesy of StockCharts.com
A multiyear line chart.