Thursday, December 23, 2010
PART II: CHART PATTERNS
8 - B: CLASSIFICATION OF CHARTS
5. ‘OPEN HIGH LOW CLOSE’- (Bar) - Chart
An open-high-low-close chart (also OHLC chart or simply Bar chart) is typically used to illustrate movements in the price of a financial instrument over time.
Each vertical line on the chart shows the price range (the highest and lowest prices) over one unit of time, e.g. one day or one hour. Tick marks project from each side of the line indicating the opening price (e.g. for a daily bar chart this would be the starting price for that day) on the left, and the closing price for that time period on the right. The bars may be shown in different colors depending on whether prices rose or fell in that period.
* To enlarge the chart Double click by keeping the cursor above the chart.
The Japanese candlestick chart is another way of displaying market price data, with the opening and closing prices defining a rectangle within the range for each time unit. Both charts show exactly the same data, i.e. the opening, high, low, and closing prices during a particular time frame. Some traders find the candlestick chart easier to read.
6. Candlestick Chart
A candlestick chart is a kind of bar-chart used primarily to describe price movements of a security, derivative, or currency over a period of time.
It is a combination of a line-chart and a bar-chart, in which each bar represents the range of price movement over a given time interval. It is most often used in technical analysis of equity and currency price patterns.
Candlesticks are usually composed of the body (black or white), and an upper and a lower shadow (wick). The area between the open and the close is called the real body, price excursions above and below the real body are called shadows.
The wick illustrates the highest and lowest traded prices of a security during the time interval represented. The body illustrates the opening and closing trades. If the security closed higher than it opened, the body is white or unfilled, with the opening price at the bottom of the body and the closing price at the top. If the security closed lower than it opened, the body is black, with the opening price at the top and the closing price at the bottom. A candlestick can have either a body or a wick or both.
To better highlight price movements, modern candlestick charts (especially those displayed digitally) often replace the black or white of the candlestick body with colors such as red (for a lower closing) and blue or green (for a higher closing).
Candlestick charts are a visual aid for decision making in stock, forex, commodity, and options trading. For example, when the bar is white and high relative to other time periods, it means buyers are very bullish. The opposite is true for a black bar.
TATA STEEL CANDLESTICK
It is not necessary to master all kinds of chart reading. In my opinion mastering the Bar Chart is more than enough. Candle stick chart can be useful for some short term trading.
Hence we will be discussing the chart patterns and its implications using OHLC charts in our next session