Stock charts provide a valuable way to analyze the historical price movement of a security. Unlike tables filled with numbers, the visual ups and downs of a chart convey meaning more effectively. With just a quick glance, you can gain meaningful insight into a stock’s past performance. This is why understanding the significance of the red bars at the bottom of a chart is crucial.
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The Price Chart and the Trading Volume Chart
In StockMarketEye, a typical line stock chart consists of two parts. The upper portion is called the Price chart, while the lower portion is the Trading Volume Chart. Let’s take a closer look at each.
The Price Chart
The Price chart displays the closing values of the stock as a blue line. By moving your mouse over the chart, you can activate the chart cursor, which reveals the details of a specific day. This information is displayed at the top line of the chart area.
The Trading Volume Chart
The Trading Volume Chart provides essential information about the quantity of the asset traded during each specific period. The volume is visually represented by bars, with taller bars indicating higher trading volume on a given day. The colors of these bars are significant.
Understanding Red and Green Colors in the Price Chart
In the Price chart, two chart styles – Candlestick and Open-High-Low-Close (OHLC) – convey additional meaning compared to a simple line chart. Instead of representing only the closing price, these chart styles symbolize the day’s activity by displaying the open, high, low, and closing prices.
The red and green versions of these chart styles add extra meaning through their colors. This meaning is also visible in the monochrome versions, but many investors find the green and red versions easier to interpret.
Red and Green Candlesticks Meaning
When using the “Candlestick Green/Red” stock chart type, a green candlestick is equivalent to an open candle in the monochrome “Candlestick” chart type, while a red candlestick is equivalent to a filled candle.
When Colors Differ Between the Price Chart and the Volume Chart
Although both the Price chart and the Volume chart use green and red to convey meaning, there is a slight difference in the interpretation of these colors in each chart type. Sometimes, the color of the candlestick or OHLC will differ from that of the volume bar.
For example, if a stock finishes higher than the previous day, the volume bar will be green. However, if the stock moves lower from the opening price on the same day, the candlestick will be colored red. This situation is not uncommon.
Start Interpreting Stock Charts Through Colors
Colors play a significant role in conveying extra meaning in stock charts. Understanding how each color is used in different parts of the chart will help you interpret their significance more effectively and make the most of the information presented.
