These are especially useful for highly liquid items Eg: negotiable securities. Portfolio decisions can be based on looking at the chart for the appropriate time period. With a chart, one can observe features like support and resistence levels. Thence, one can decide whether it is a good time to buy or sell an equity.
This is because charts contain in them the evaluations of large fund managers etc.. But that can be misleading in case of bubbles.
Price vs time
Stock price: piecewise line
On this chart, the main plot would be the stock price as a function of time. When the time axis is finely grained, one uses a piecewise linear function to show price movements.
Stock price: candlesticks
For some analysis it is more convenient to consider grosser discretizations of time: eg: daily. Since the stock price will have shown variations during this time period, one may represent many important features, like starting price, closing price, price range within a standard deviation: eg: using candlestick like shapes instead of points. Depending on whether price rose or fell during a time period, these candlesticks may be shaded differently.
Trend lines
On the same chart, it is useful to show a pair of trend lines/ Bulliger bands which connect highs and lows at grosser time periods. This helps understand how the resistance to price increases and support in the face of price decreases have varied over time, while ignoring short-term variations.
Support/ resistence levels
Support and resistance levels in a stock’s price chart correspond to price-ranges at which a twice or more times a low or high was observed. These include within them information about the fundamental value of a stock, as determined by fund managers.
Moving averages
Plots of k-day moving averages, for k = 15 to 200, brings out a smoother curve ignoring local jitters. This is helpful for long/ intermediate term investors.
Futures price
Here, one plots the average strike price against time together with the actual security price. If future pricing were perfect, these lines would coincide; but this is not the case. The current price is affected by its speculated price, while the speculated price is affected by the current price. So, these curves tend to converge.
If the speculated price converges from above, it is called contango. If the speculated price converges from below [Incomplete].
Running strength index (RSI)
This plots a ratio which measures bullishness (0 to 1) against time. Anything above .5 is considered strongly bullish. Extereme RSI’s outside say [.3, .7] indicates oversoldness: ie the market is probably overreacting, one-sided, in a herd mentality. This is used as a signal by some traders to bet against the trend.
Moving average convergance/ divergence(MACD)
This plots two exponential weighted k-day moving averages for, say, k = 12 and 26 against time.
These together indicate the momentum of price, and can also indicate bullishness and bearishness levels. This is mainly of interest to traders rather than long term investors.
Volume histogram
[Incomplete]
Patterns
Traders have come to assign names to various patterns in the movement of prices. The idea is to use patterns in predicting future price movements: ie, determine the trend.
Reliability
Reliability of patterns can be judge using the duration of the developing pattern. However, such reliance is dangerous in case of a bubble.
Types
Patterns may be short term or long term. They may be continuation patterns or reversals depending on the overall price movement (taking away the jitters).
Ticks
These are very short term patterns - where just the last two distinctly priced trades (possibly at the end of small time-periods) are considered. A security price which is observed to be increasing is said to be uptick. The reverse is called a down-tick.
Triangle
The trendlines connecting highs and lows converge to form a triangle. So, there is a contraction in the price range. This is usually a continuation trend.
Ascending
Here, the highs are roughly the same level, while the lows keep getting higher. This is a sign of increasing demand sufficient to overcome existing skepticism about it. This usually indicates rising price.
Descending
Here, the lows are roughly the same level, while the highs keep decreasing. This usually indicates falling price.
Symmetric
Here, highs keep decreasing while lows keep increasing to converge at an intermediate price.
Wedge
In this pattern, trend-lines connecting highs and lows respectively seem to converge, but they move in the same direction. This is a continuation pattern - indicating acceleration or deceleration.
Head and shoulders
The price vs time graph shows price going towards (either increasing or decreasing) a certain level (the neck-line), and then 3 spikes beyond this level, the second of which (the head) is taller than the others.
This is a reversal pattern.