Just
recently, I was able to have a brief chat with a group of OFWs working in KSA.
Most of these gentlemen were very much engrossed to join the stocks investing
bandwagon. In fact, two of them have recently
opened an online trading account and have just bought their initial stocks for
their Peso Cost Averaging portfolio.
At one
point, they asked me about Technical Analysis. I gave them a few general
insights on the different methods of analyzing the price trends. I have
noticed, though, that no one on the said group is familiar yet on how to interpret
the type of charts used in the portal of the Philippine Stocks Exchange.
To
help the guys, I promised them to post an article here in PISO Ni Juan a basic
explanation on how to identify the open, high, low and close of those charts
being used in the PSE website. I understand their dilemma since I was once in
their situation before when I am still starting with stock trading a few years
back.
Before you
could understand Technical Analysis patterns of stock charts, it is a basic requirement for
an aspiring stocks investor to be able to interpret the charts used in stocks price
charting. At the moment, there are three types of chart that is being used by
the PSE to represent the stock’s price over time; these are the Line Chart which is the
most basic, the OHLC Bar Chart and the Candlestick Chart.
Let’s
discuss them one by one.
LINE CHART
The line
chart is the most basic among the three kinds of chart. The line represents the
closing prices of a certain stock over a period of time. The horizontal frame
of the chart represents the period of trading the stock while the vertical
frame represents the price range. The line is formed by connecting the closing
prices of the stock at the end of each trading day over the time frame. (See
Fig. 1)
 |
| Fig. 1. A Line Chart |
BAR CHART
The OHLC Bar
Chart is the most popular charting method used by stock traders. One vertical
line represents one trading day. Each vertical line shows four kinds of
information. The topmost point of the vertical line represents the high price
of the trading period while the lowest point represents the low of the trading
day.
On the left and right of the vertical line are single horizontal dashes.
The left horizontal dash represents the opening price while the horizontal dash
on the right side of the vertical line represents the closing price of the
trading period. (See Fig. 2 below).
 |
| Fig. 2. OHLC Bar |
Fig. 3 below is an example of an OHLC Bar Chart of a certain security.
 |
| Fig. 3. OHLC Bar Chart |
CANDLE STICK CHART
The
candlestick charting method was developed in Japan somewhere in the 18th
century. It was introduced in the Western world by Steve Nison through his book
Japanese Candlestick Charting Techniques.
Like the bar
chart, candlestick also plots the open, high, low and close of a certain stock during
a trading period. For some stock traders, though, the candlestick is more graphically
fascinating and simpler to interpret compared to the bar chart.
Candlestick has
two basic types, the white or open candlestick and the black or closed
candlestick.
(See Fig. 4 below).
 |
| Fig. 4. Candlestick |
In the open
or white candlestick, the closing price is higher than the opening price. This
means that there was a stronger buying pressure during the trading period.
In a close
or black candlestick, the closing price is lower compared to the opening price.
The selling pressure for this kind is higher during the trading period.
The upper
wick of the candlestick represents the high price while the lower wick
represents the low price of the trading period.
During the
period where the opening and closing prices are the equal, this kind of
candlestick signifies indecision between the buyers and the sellers. This kind
of candlestick is called “doji”.
Fig. 5 below is an
example of a candlestick chart of a certain stock.
 |
| Fig. 5. Candlestick Chart |
This article aims to help beginners interpret and read the charts used in the
PSE web portal by being able to identify the opening, high, closing and low
prices of stocks during a certain trading period.
By learning
these basic skills, you are now a few steps ready to learn the more complicated
skills of identifying the different chart patterns the art of Technical
Analysis can offer.