Not all stock charts are created equally. The most popular types are line charts and candlestick charts. Line charts are basic; they plot the price over time-series data, like in the example below.
Line Charts
The above chart gives us two data points: the date and the price. From these essential data points, we can make several insights about the trend strength and duration, how the stock price reacts to good/bad news and the stock’s average annual returns.
However, because each plot on the chart represents one day of trading activity, we have little data on individual trading days. We can’t answer questions like ‘how wide is the daily trading range?’ or ‘does this chart tend to close each trading day close to it’s daily high?’
Typical uses of the line chart:
- Investors needing a basic view of a stock’s trading history
- Removing noise from candlestick charts
This is where the more detailed candlestick charts come in. While line charts provide an easily digestible price history, they don’t offer the more in-depth information provided by candlestick charts.