Chart your way to success

Knowing how to interpret charts is important for successful investing, whether you're holding for the long term or going for a quick profit. Charts are readily available and often free.

- ROGER KINSKY

Why use a chart? The beauty of charts is their immediate visual impact. It’s the difference between looking at a photo of a scene or a person compared to trying to form an impression from a description. Charts allow you to see at a glance how the share price has been trending rather than trying to plough through rows and rows of figures.

Charts may be used for two main purposes:

• Monitoring. They allow you to easily keep tabs on the price action of the shares in your portfolio. The value of your portfolio is the sum of the values of each of your shares and the value of a shareholding is the price multiplied by the number of shares.

• Trading. When you’re contemplating buying or selling, charts are an essential tool that helps you to decide if you really want to go ahead with the trade right now or whether it might be better to defer (or abort) your plan. That’s to say charts allow you to better time a trading decision.

There are many types of charts, but the most useful is the daily price chart.

As you would expect, it shows the closing share price each day over some past period. The way the price is shown can vary considerably, but the most common ones are:

• Line chart – shows daily closing prices as a line.

• OHLC chart – so named because this chart indicates opening, high, low and closing prices. A bar is drawn each day showing the price range for the day between the lowest and highest trade price. This line also has two small horizontal bars on it showing opening and closing prices. These could be the same as the high and low prices but often they are different.