a line chart graphically represents an asset s price over time by connecting a series of data points with a line this is the most basic type of chart used in finance and it typically only depicts a security s closing prices line charts can be used for any time frame but most often have day to day price changes 1
understanding line chartsa line chart provides traders with a visualization of the price of a security over a given period of time because line charts usually only use closing prices they cut the noise from less critical times in the trading day such as the open high and low prices line charts are popular with investors and traders because closing prices are a common snapshot of a security s activity 1other popular styles of charts include bar charts candlestick charts and point and figure charts traders can juxtapose line charts with others to help see a fuller technical picture 2types of line chartsline charts are versatile in finance and investing and there are different types to suit your analytical needs simple line charts multiple line charts and compound line charts these charts present data in a clear concise manner they help identify trends make comparisons and understand changes in different economic and financial metrics simple line charts are the most basic form representing data points connected by a single line they typically show the ending periods of a security or financial and economic data over a given period ideally simple line charts are used to track the price trend of a single asset over time this helps identify general trends and patterns in price changes for example you could use one to monitor the trend of the closing price of a stock over a year to assess its performance these charts involve plotting several lines on the same chart each representing different data this is useful for simultaneously comparing the performance of several securities indexes and other financial and economic metrics comparing the performance of various stocks sectors or markets to identify the relative strengths or weaknesses is an example of using multiple line charts compound line charts also known as stacked line charts show the cumulative effect of several data sets stacked on top of each other 2 they are used to understand the combined effect of multiple factors on a single outcome or to analyze the composition of a metric over time demonstrating how different asset classes contribute to the overall performance of a portfolio over time is a good use of these charts 