Types of Stock Market Charts

1. Types of Stock Market Charts

There are three main types of stock market charts:

(A) Line Chart

• Simplest chart, showing only the closing price over time.
• Useful for identifying trends but lacks detailed price action.

(B) Bar Chart (OHLC – Open, High, Low, Close)

• Shows four price points for each period:
  • Open: Where the stock started.
  • High: The highest price.
  • Low: The lowest price.
  • Close: Where the stock ended.
• Helps analyze volatility and trend strength.

(C) Candlestick Chart (Most Popular)

• Each candle represents price movement for a specific period.
• Green (or White): Bullish (Closing price > Opening price).
• Red (or Black): Bearish (Closing price < Opening price).
• Key Patterns:
  • Doji → Indecision (Reversal possible)
  • Hammer → Bullish reversal
  • Shooting Star → Bearish reversal
  • Engulfing Candles → Strong trend confirmation

2. Key Chart Components

When analyzing stock charts, focus on these elements:

(A) Time Frames

• Intraday (1 min, 5 min, 15 min) → Best for day trading and scalping.
• Swing Trading (1 hour, 4 hours, daily) → Medium-term trades.
• Long-Term (weekly, monthly) → For investors.

Since you’re into options trading, shorter time frames (5 min, 15 min, 1 hour) will be most useful.

(B) Price Action & Trend Lines

• Uptrend: Higher highs and higher lows.
• Downtrend: Lower highs and lower lows.
• Sideways (Consolidation): Price moves in a range.

Use support & resistance levels to predict where price may reverse or break out.

3. Technical Indicators to Use

(A) Moving Averages

• Simple Moving Average (SMA): Basic trend indicator.
• Exponential Moving Average (EMA): Faster reaction to price (better for trading).
• Golden Cross (Bullish Signal): 50 EMA crosses above 200 EMA.
• Death Cross (Bearish Signal): 50 EMA crosses below 200 EMA.

(B) Relative Strength Index (RSI)

• Measures momentum on a scale of 0 to 100.
• Above 70: Overbought (possible reversal).
• Below 30: Oversold (possible bounce).
• Between 40-60: Neutral zone.

(C) MACD (Moving Average Convergence Divergence)

• Shows momentum shifts.
• Bullish Crossover: MACD line crosses above the signal line.
• Bearish Crossover: MACD line crosses below the signal line.

(D) Bollinger Bands

• Helps measure volatility.
• Price touching upper band: Overbought.
• Price touching lower band: Oversold.
• Squeeze: Indicates a potential breakout.

(E) Volume

• High volume with price rise = Strong buying momentum.
• High volume with price drop = Strong selling pressure.

4. Chart Patterns for Trading Options

(A) Bullish Patterns

• Ascending Triangle → Breakout potential.
• Cup & Handle → Strong uptrend ahead.
• Double Bottom → Trend reversal (bullish).

(B) Bearish Patterns

• Head & Shoulders → Trend reversal (bearish).
• Descending Triangle → Breakdown expected.
• Double Top → Bearish reversal.

5. Options Trading & Chart Analysis

• Use support/resistance zones for setting entry & exit points.
• Identify trend strength using RSI & MACD before buying calls/puts.
• Look for breakouts or breakdowns before entering trades.
• Check volume confirmation to validate strong moves.