Basic Of Charting And Stock Market Analysis

Basic Of Charting The Stock Price And Basic Market Data

For basic of charting the stock price let’s get some insight into the stock market trading process. All trades taking place between two traders in exchange are recorded as tick data for each and every stock in the market. This includes the stock symbol, trading price, quantity of shares and time at which trade took place. Below is a sample of tick data for XYZ stock for trading taken place from 13:10:00 to 13:10:59 i.e.1 minute in table form:

Tick data of XYZ stock in 1 Minute

SYMBOL	DATE	TIME	TRADE PRICE	QUANTITY
XYZ	05/11/16	13:10:02	181	1500
XYZ	05/11/16	13:10:05	181.05	200
XYZ	05/11/16	13:10:08	181.1	500
XYZ	05/11/16	13:10:09	181.2	10020
XYZ	05/11/16	13:10:11	181.15	15300
XYZ	05/11/16	13:10:14	181.1	2520
XYZ	05/11/16	13:10:16	181.15	6300
XYZ	05/11/16	13:10:20	181.2	3200
XYZ	05/11/16	13:10:23	181.25	9000
XYZ	05/11/16	13:10:28	181.3	13200
XYZ	05/11/16	13:10:33	181.25	5000
XYZ	05/11/16	13:10:34	181.35	10600
XYZ	05/11/16	13:10:35	181.3	2530
XYZ	05/11/16	13:10:38	181.45	21000
XYZ	05/11/16	13:10:41	181.35	1600
XYZ	05/11/16	13:10:45	181.3	13200
XYZ	05/11/16	13:10:49	181.2	26500
XYZ	05/11/16	13:10:55	181.25	26050
XYZ	05/11/16	13:10:56	181.3	1800
XYZ	05/11/16	13:10:58	181.35	16000
XYZ	05/11/16	13:10:59	181.3	3250

 

 

 

 

 

Tick Charts

Watch Here that this data is of all trade happened on XYZ stock from 13:10:00 to 13:10:59. This is only 1 minute on 5th November 2016 and that contains 21 No. Of trades in the price range of 181.00 to 181.45 that is indicated as trading price and quantity of share traded is indicated in the last column. This tick data can be represented in chart form as follows:

The above chart is called a tick chart, here the price is plotted on Y-axis and time is plotted on X-axis. This is the normal convention of charting in the stock market. In this chart minimum, the allowable price difference is 0.05 Rs. which is called a tick value that means the trading price of the share can only be in multiples of 0.05 Rs.

As any liquid stock will have very large no. of trades during a trading session, the tick chart of a session will be quite large to analyze so tick chart are compressed using time compression in 1,5,10,15,30,60 minute, Daily OR Weekly format as required by the user of the chart.

Basic Market Data Fields

Let us now understand how the above tick chart of XYZ is compressed in 1-minute chart format.

For this, we required five basic price field from the above tick data of XYZ stock.

1. Opening Price: This is the trading price at the very first trade of selected timeframe. In case of XYZ stock, we have first trade at 181.00
2. Closing Price: This is the trading price at the very last trade of the selected timeframe. In case of XYZ stock our selected time frame is 1-minute so we will consider 13:10:59 as last trade and that is 181.30
3. Highest Price: This is the highest trading price in the selected timeframe. Here we have 181.45 for XYZ
4. Lowest Price: This is the lowest trading price in the selected timeframe. Here we have 181.00 for XYZ
5. Volume: This is total shares traded during the selected timeframe. Here the total sum of traded quantity of shares is 189270 shares.

So now we have only 5 price fields instead of the tick data which is representing the all trading activity in a compact form. This price field is represented as O-C-H-L-V respectively in short form. This price field is like the highlights of the trading activity occurred in that timeframe. Of course, we are losing the movements between that time but for purpose of analysis in the higher timeframe, it will not be of much importance.

Candlestick Charts

Now how can we represent this data in chart form? There are various methods for that, the most popular is candlestick charting method. In candlestick chart the Open and Close is indicated as the body of a candle, High and Low is indicated at wick of a candle, the same is indicated in following drawing for easy understanding.

 

So now we can represent the OHLC data in form of candle with a chart on which Y-axis represents trading price and X-axis represents the time of trading. The trading volume is represented as a histogram in the bottom panel in the chart.

As in the case of our example, our data is like this:

O: 181.00, H: 181.45, L: 181.00, C: 181.30, V: 189270 and time of trading is 13:10 to 13:11 so we can draw this 1-min candle in chart form as follows:

Note here the L is equal to O so the lower shadow or wick of the candle is not shown. Also, note the green color of the candle which represents C is higher than O. Instead if C were lower than O then the color of candle body would be red as shown in the following drawing.

Coloring The Candlesticks

By observation of color of candle, we can judge the price movement in the selected time period. If the candle is green then the price movement in the time period was rising and if the candle is red then the price move was downward. If we draw all intraday data in 1-minute chart form it would look like below chart.

 

The points to be noted in this charts are as below:

• X-axis is time axis indicating 1-minute timeframe
• Y-axis is price axis indicating share prices
• Each and every candle is positioned as per their respective OHLC value
• The color of candle are green and red depending upon position of O and C
• In Top right side of chart is description of OHLC value of last candle, its symbol and date and time
• The volume of trading in each and every candle is indicated as histogram bars in bottom panel

Bar Charts

Other than candlestick chart, the other popular method of charting is Bar charts. In this type of charts, the H-L is represented as a small vertical line on the chart. O is represented as a small notch on the left side of line and C as a right notch. The same can be easily understood by the following drawing:

Here the bar chart represents the same candlestick chart drawn for the tick data on 5/11/2016 from 13:10:00 to 13:10:59. The following is the same chart as previous candlestick chart but here the candlestick are replaced with bars.

 

You can also watch all of these and more about charting in the following video: