📊 Chart basics: line, bar and candlestick charts, scales and time frames

🎯 In 30 seconds: A price chart puts time on the bottom and price up the side. A line chart joins the closing prices. A bar chart and a candlestick chart show four prices for each period: open, high, low and close. The time frame decides what one bar means, from one minute to one month. The scale decides how moves look: linear charts show dollar changes, log charts show percentage changes. And the data itself may be adjusted for splits and dividends. Get those four settings right and the rest of technical analysis has something solid to stand on.

What a price chart shows

A price chart is a record of trades. The horizontal axis (the x-axis) is time. The vertical axis (the y-axis) is price. Each point, bar or candle summarizes all the trades in one period, such as one day.

For every period, four prices matter:

• Open: the first trade price of the period.
• High: the highest trade price during the period.
• Low: the lowest trade price during the period.
• Close: the last trade price of the period. For a daily chart, this is the official closing price.

Traders shorten these to OHLC. Most chart types are just different ways of drawing some or all of these four numbers.

Line, bar and candlestick charts

Line chart. Connects the closing prices. It is clean and good for seeing the big picture over months or years. It hides what happened during each day. On day 3 above, the price fell to $50 during the session, but the line only shows the $50.50 close.

OHLC bar chart. Each period is a vertical line from the low to the high. A small tick on the left marks the open. A small tick on the right marks the close. Many platforms color the bar green when the close is above the open and red when it is below.

Candlestick chart. Shows the same four prices, but draws a thick body between the open and the close and thin wicks out to the high and low. The body makes it easy to see at a glance who won the period, buyers or sellers. Most traders use candlesticks today. Candlestick charts covers them in detail.

Bars and candles carry exactly the same information. Pick whichever you find easier to read and stick with it.

Time frames: what one bar means

The time frame is the length of the period each bar covers. Common choices:

A longer bar is built from shorter ones. Here is how the five daily bars above turn into one weekly bar:

On a weekly chart, that busy week is one modest green bar: up $1.80, or 3.6%. The 9% swing from the $53.50 high to the $48.50 low is still there in the wicks, but you would not feel it. That is the main point about time frames: shorter frames show more noise, longer frames show more direction.

Match the time frame to how long you plan to hold. A swing trader holding for two weeks gets little from a 1-minute chart. Using multiple time frames shows how to combine them.

How to read an axis

Most chart mistakes come from the axes, not the pattern.

• The price axis rarely starts at zero. Charting software zooms in to fill the screen. A move from $100 to $102 can fill the whole height of the chart and look like a cliff. Read the numbers on the side, not the slope.
• Weekends and holidays are skipped. On a daily chart, Friday sits right next to Monday. Gaps between bars are price gaps, not missing days.
• Pre-market and after-hours trades may or may not be shown. Intraday charts often have an "extended hours" setting. Daily bars normally use the regular session only.
• The start date changes the story. The same stock can look like a winner or a loser depending on where the chart begins.
• Volume sits in a separate panel. The bars at the bottom of most charts are shares traded per period, not price. See Volume.

Linear vs log scale

On a linear scale, equal distances on the y-axis are equal dollar amounts. The space from $10 to $20 is the same height as the space from $150 to $160.

On a log scale (logarithmic), equal distances are equal percentage changes. The space from $10 to $20 (a 100% gain) is the same height as the space from $80 to $160 (also a 100% gain).

Why it matters for you: what you earn depends on percentage moves. A $10 move on a $20 stock is a 50% gain. A $10 move on a $200 stock is 5%. A linear chart draws them the same size.

A simple rule: use linear for short periods where the price has not changed much (a few weeks or months). Use log for long periods or for anything that has doubled or halved, such as a 20-year chart of an index. Trendlines drawn on a long linear chart and on a long log chart can point to different places, which is one reason two traders looking at "the same chart" disagree.

Adjusted prices: splits and dividends

Companies sometimes split their shares. In a 2-for-1 split, each share becomes two and the price halves. Nothing about the value of your holding changed, but an unadjusted chart shows a 50% crash on the split date.

To fix this, data providers publish adjusted prices. Yahoo Finance, for example, describes its method using CRSP standards: every price before a 2-for-1 split is multiplied by 0.5, and every price before a dividend is multiplied by (1 minus dividend / previous close).

A worked example from that method. A stock closes at $48.30, then splits 2-for-1, then a few days later goes ex-dividend for $0.08, with $24.96 as the reference close.

Adjusted prices show the return you would actually have earned, including dividends. Use them for long-term comparisons and for any backtest. Use actual traded prices when you care about where real orders sat, such as a support level from last month. Most charting tools let you switch between the two. Make sure you know which one you are looking at. Dividends, splits and buybacks explains why the price drops on the ex-dividend date.

A simple checklist for every chart

1. What is the time frame of each bar?
2. What date range is shown, and why that one?
3. Is the price scale linear or log?
4. Are prices adjusted for splits and dividends?
5. Are extended-hours trades included?
6. What do the y-axis numbers say the move actually was, in percent?

Try it

Open the index dashboard and look at the S&P 500 over the longest period available. Switch between linear and log scales if your charting tool allows it, and note how the early years change. Then pick any stock from your Watchlist and view one month as daily candles, then the same month as hourly candles. Write down one thing the hourly chart shows that the daily chart hides. Finally, build one weekly bar by hand from five daily bars and check it against the weekly chart.

Sources

• Yahoo Help: What is the adjusted close?
• Investor.gov (SEC): Reverse stock splits
• Investor.gov (SEC): Ex-dividend dates