What is Chart

What is Chart ?

         Chart made by the combination of two important and basic things, one is time frame and another is price data, If Price data is plotted over time frame than it becomes chart. In the charts generally the vertical axis are known to represent price data and likewise the horizontal axis on charts are known to represent time frame /date etc.

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Charts and its properties

          Time frame and price scale is used in the chart and it is the basic thing and most important part to plot a chart, besides that one needs to read the chart very closely and with details, because there are several factors which affect the reading of charts and bring out the information from it.

Time Frame

          Price Date can be plotted and make the chart in any time frame, it means you can plot the price date into any time frame length (but u need to have price data of those time frame) in simple words you can create horizontal axis in any time frame from 1 minutes to 5 minutes to hours to weeks to months to years, but if you don’t have price data as per your selected time frame than the hart will show blank.  

          For example : suppose you want to see the chart in 5 minutes time frame but you only have EOD (end of day) data, and when you try to plot that daily data into the 56 minutes time frame chart than it will only show one dot / line / bar / candle stick for each day instead of many lines of 5 minutes each.

It is important to decide which time frame interval is to be used for trading, investing etc.  it all depends what is your trading style and horizon and technique etc. Many traders do intraday trading and many do swing trading and also many do investments for short to medium to long term, it is always advised for all kind of market participants to use technical analysis.

         

         Intraday Trader - For them it is always suitable to concentrate and use the charts time frame as short as from 1 minute to upto 15 minutes or maximum of 30 minutes time frame charts for best results.

        

        Swing Traders – Swing traders are those who take position 1-2 days to couple of weeks. For these kinds of traders it is best to use chart with time frame intervals from few hours to daily time frame charts for best results.

         Short Term Positional Traders – these traders are similar to the swing traders but these traders used to hold their position from couple of weeks to upto 3 months. It is best for them to use the charts with the time frame from daily to weekly and sometimes monthly also.

Medium Term Positional Traders or investors  – These positional traders are usually use technical analysis with combination of fundamental analysis. For these kinds of positional traders it is best for them to use weekly & monthly time frame charts for best result on their investments. These Investors cum traders have mix of both combination as they have the capacity to hold the position from 6 months to upto12 months and even 18 months also or as per the with the return target, so whichever comes first they act on that, suppose the target meet first than they will exit from the trade or they will wait till the target till it achieved and for that they have medium term outlook and have capacity to hold.

         Long Term Investors – These kind of participants are normally never called as traders as they are not trader or speculators , they are entering into the market with a long term perspective and wants to hold their investment positions minimum of 12 months to upto 3 years and even 5+ years also. These investors not much think about technical analysis as their perspective is long term that’s why they rely upon fundamental analysis most of the time. But many of them also use historical data of price chart in the time frame from few months to many years of historical chart.

As far as I think long term investors only needs to check the long term time frame charts and sometime even shorter time frame charts only when they wants to enter into particular stock or into the market and sometimes also when they want to exit from the market or particular stock, why I am saying this is because if suppose for an       Example :  As a long term investor I want to enter into market with amount 1 million into some company stock, and if I don’t know where is market is heading that what can happened ? 

Scenario no. 1- I entered into the stock market by buying some xyz  shares and after I bought  suddenly it price falls down in few days or may be same day.

Scenario no.2 – I entered into the market with buying some shares of xyz Company and after I bought it the stock prices grow steadily upwards direction and I getting profits.

Scenario no.3 – I entered into the market by buying stock of xyz company shares and after I bought it it just stuck to my buying range and not moved for many months, so all those months I just stays invested but not gets anything, not even the bank interest on it.

           

          So in all above 3 scenarios what we understand that charts and technical analysis shows us the best time to enter into the market or that particular stock to safe guard the sudden downfall or stagnant period of that stock. Same thing implied when you are exiting or booking profit from that investment.

          In scenario 1 & 3 if suppose I checked the charts before entering into it and suppose in charts reading the information is clearly showing that the stock is into down trend or expected to fall from the present levels than I might not enter into that particular stock or may be whole market at that point of time, which can save me from the down fall and time of my holding period.

         But it is not always true because sometimes stock falls or rise are so sudden like a spike that even charts also sometimes not able to predict the time that how soon it will rebound. So it is always best for Long Term Investors off-course use Fundamental but at least use Technical analysis at the time of entering & exiting market / stocks for best results. It is always advised by many legends that if you are a long term investors than never try to time the market, instead of that just keep enter into the market at every dips and on every intervals and keep holding your investments for long term for best returns.

Price Data or Scale

Arithmetic and Logarithmic these are the two methods to display the prices on the y-axis on the charts.

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