The Technician's Basic Tool: The Price Chart
By Mark Etzkorn

Whether you trade short-term or long-term, discretionary or systematic, your goal
as a technician is always the same: to find profitable patterns in price behavior.
To accomplish this, technicians use a number of methods to identify the
prevailing price trend, or to identify points at which a trend is about to reverse
(the time scale, of course, can vary). These basis for these techniques can be
roughly divided in two categories: chart analysis and technical indicators.
Because basic chart analysis is the backbone of technical trading, we'll explain
the most popular chart types, what they tell you, and where chart analysis fits into
an overall trading plan. In future articles, we'll go into more detail about specific
chart pattern and trend analysis.
Elements of a price chart

Price charts can depict price action in any number of time frames or styles. In
almost all cases, though, the horizontal x-axis of the chart represents time and
the vertical y-axis represents price. Before discussing the different types of
charts, though, there are a few simple, but important concepts you need to
understand.
•
High.
The highest price of a given trading period, be it an hour, day,
week, or month.
•
Low.
The lowest price of a given trading period.
•
Opening price (or open).

trade than illiquid markets because they are less prone to wild swings or
gaps between prices. (However, some traders use strategies specifically
designed to profit from the volatility in illiquid markets.)
The bar chart

The most popular type of price chart is the daily bar chart, which summarizes the
price action of a trading session as a vertical line, or bar, ranging from the high
price to the low price. The closing price appears as a horizontal hash mark
extending out from the right of the bar and the opening price appears as a
horizontal hash mark extending out from the left of the bar (sometimes the
opening price is omitted).

Figure 1. A price bar from a daily bar chart.

Figure 1 depicts a typical price bar. A daily bar chart, for example, would
represent each day's trading with an individual bar: The high of the bar would be
the high price of the day, the low of the bar would be the low price of day, and the
left and right hash marks would be the opening and closing prices of the day,
respectively. The price bar succinctly summarizes the day's trading activity: the
daily range (from high to low), where the market opened, and where it closed.
Figure 2 shows a daily bar chart for Dell computer.

Figure 2. Daily bar chart, Dell Computer.

Time frames

Price charts can be constructed in virtually any time frame: minutes, hours, days,
weeks, months, quarters, years, etc. A weekly bar chart, for example, would be
constructed exactly the same as the daily bar chart except that it would use the
high and low prices of the week rather than the high and low prices of a day.

provide a context for the price action on shorter-term charts. A trade signal
generated from a pattern on a short-term chart may be supported or negated by
the activity on the long-term chart. A short-term buy signal might be ignored, for
example, if the long-term chart shows a strong downtrend is in force.
Other types of charts

Bar charts are the most widely used chart type, but they are not your only choice
as a technician. Other chart styles give you different perspectives on price action.
Line (close-only) charts
The line chart plots only the closing prices from each trading session, essentially
creating a simplified version of the standard bar chart. Figure 6 shows a close-
only version of the price data from Figure 2. Some charting software will allow
you to create line charts using the high price, low price, or average price from a
particular bar instead of the closing price, but the closing price is most commonly
used in technical analysis.