When series of data points are connected with an unbroken line, this is what we define as a line chart, an essential type of trading chart. Past and present prices for single or more stocks are depicted through line charts and used in finance and trading. This type of chart is crucial to traders and investors, given that the closing price is somewhat significant compared to the open, low, and high price during a fixed timeframe.
There are multiple advantages to line charts; one of them is analyzing the market with ease through the provided data. It is also fairly easy to spot ongoing trends on this type of chart. Line charts have less noise on them, which is possible due to their simplicity. In trading, each chart contains an X (horizontal) and a Y-axis (perpendicular), the X being time in the form of days and the Y being price. EuropeFX Review explains how line charts work and how to trade using them.
How They Work
The data points on line charts must include the highs and lows and the open and close prices. A line chart is made up of horizontal and vertical axis, X and Y. As we’ve said, the X-axis represents time in the form of days or months, while the Y-axis represents the listed stock price. Progress tracking of a single stock is done with line charts, which derive from brokerage firms. There are a couple of factors affecting the share price and need to be taken into consideration while trading with these types of charts:
- News release on company earnings and profits
- Announcement of dividends
- Employee layoffs
- News on a new contract secured by the company
- Changes in management
- Interest rates, inflation, and deflation
- A scandal or an accounting error in the company
These factors, among other things, influence the prices of particular stocks and can influence whether they rise or fall. Big or small price fluctuations are recorded on the chart in the form of data points. The system connects several data points, providing a straightforward viewpoint for analysis. An unbroken line depicts all stock movements, giving traders a progressive type of chart that quickly reveals downtrends or uptrends while forming historical data.
How to Trade with Line Charts
Beginners might be perplexed with line charts when they start trading, but it is a resourceful tool for profiting from a particular stock for professionals. Combining different indicators along with a solid trading strategy is the recipe for profit. Some of these indicators might include:
- Highs and lows
- Support and resistance
- Head and shoulders pattern
- Trend lines
- Inverted head and shoulders pattern etc.
If you are just beginning your trading journey, EuropeFX Review advises you to do thorough research and consult a professional. A mentor who will guide you through the process of learning how to trade with line charts and give you input on indicators, strategies, and other tools needed for trading with profit.