What is a Price Chart?
What Is A Price Chart?
If truth be told we are exposed to charts everyday of our lives,
a lot of the time without us even realising it. They are used
in our weather forecasts, countless news items, in presentations
at work or at school and even at the supermarket on our food
packaging. From a very early age we are taught how to construct
a chart; first on paper and then on to simple computer programs
such as Excel and PowerPoint. Usually the purpose of our charts
is to display the results of a science experiment, a maths problem
or the results of a survey. So from childhood we are taught to
read and work with the fairly simple language of the chart.
Visual Representation
If you think about it all a chart really does is represent a set
of data in an extremely visually appealing way. The chart doesn’t
make the data; the chart doesn’t collect the data. A set
of statistics, results or information already exists and by constructing
a chart it is almost as though you are giving this information
a voice. The difference between a set of numbers in an Excel
spread sheet and a chart constructed from this data can be so
profound that the chart almost gives the figures meaning! Studies
have shown that we are much better at spotting information that
is interesting to us than describing what it is that we are looking
for so the visual appeal and simplicity of a chart is an instant
hit with the way our brains’ function.
In The Context Of The Financial Markets
Let us move this article into the context of the financial markets.
In this case the chart is most commonly used to display price
over (very importantly) a period of time. Now price represents
the value of one share in the stock market, one contract in the
futures market or one unit of base currency in the foreign exchange
market. Time can be adjusted to show information ranging from
one tick (the smallest movement possible in price) to multiple
years at a time. Why is time so important? When making decisions
about investments it is very important to consider where price
has been in order to determine where price is likely to go. Well
sure the price of GBP/USD is 1.9750 now but what
was it yesterday 1.9500, 2.0000? This study of historical price
charts is known as technical analysis.
The Importance Of The Price
Chart
It used to be the case that the only way to keep track of price
movements in the financial markets was in print over the ticker
tape or the financial section in news papers. This situation is
comparable to the difference noted between the visual appeal of
Excel cell data and charts constructed from it. Data could be plotted
manually onto a chart but the process was painstaking and tedious.
It wasn’t until the arrival of computers and software that
could plot this information instantly for you that technical analysis
became so popular and mainstream. It is fair to say that the price
chart is technical analysis when you consider that without it chart
patterns and technical indicators would not exist.
The price chart is a truly multitasking instrument with volume,
technical indicators, candlesticks, bars, point and figure, trend
lines and daily ranges all added to complement the two key ingredients
of price and time.
