What Types of Charts Do Analysts Use?

In early markets, when the price for a security or good might be established only once or twice a day, the chart was extremely simple. It was merely a graph of closing prices connected by a line, sometimes directly connected, and sometimes connected by perpendicular lines. In Japan, this type of chart was called a “tome” chart from the word “tomene,” which means “close.” In the Western world, this type of chart is still used and is called a “line” chart.

When trades became more frequent, chart forms took two paths. The first and still most common style was borrowed from the bar graph or stick graph and portrayed the high and low with a “floating” vertical line not connected to the base line. These were called bar charts or vertical line charts. Interestingly, in Japan, where many chart types were developed, the original plotting of price data was from right to left rather than the now-universal method of plotting from left to right. This bar style then evolved into the candlestick chart, which uses the same information as the bar chart but has a more appealing appearance to the eye. The other path was called the price movement line, where prices were recorded as they occurred, and only the ones that deviated from earlier prices by a specified amount were graphed in a line. This method of price plotting is the forerunner to the modern point-and-figure chart.