Chart types — line, bar and candlestick
The answer
A line chart, a bar chart and a candlestick chart of the same stock contain different amounts of information. The line chart shows only the closing price. The bar and the candlestick contain exactly the same 4 numbers as each other, and the only difference between them is how easily your eye reads them.
Why this costs you money
You look at a line chart of a stock. It rises steadily for 3 months, then flattens for 2 weeks near a level, then rises again. The story is clear. You buy on the next flat patch, expecting the same thing.
The line chart did not tell you that in those 2 flat weeks the stock traded in a 9% range every day. It did not tell you that it opened at the top of the range 4 times and closed at the bottom. It did not tell you that on 2 of those days it gapped down at the open and recovered. All of that was in the data. The line chart threw it away, because a line chart keeps 1 number out of 4.
Then you buy, place a stop 3% below, and the ordinary daily range takes you out before the move you were right about even starts.
Most bad chart decisions are decisions made on a chart that removed the relevant information. The information was available. Nobody chose to hide it. The chart type made the choice, and the reader never noticed a choice was being made.
The second version of this costs more. You draw a trendline on a 20-year chart using an ordinary price axis. On that axis the first 12 years are a flat line against the bottom, so your trendline is drawn entirely through the last 8. You then treat it as a 20-year trendline. It is not. It is an artefact of the axis.
How it works
The 4 numbers
Every price bar, on every timeframe, is built from the same 4 numbers for that period.
- Open — the first traded price of the period.
- High — the highest traded price.
- Low — the lowest traded price.
- Close — the last price, or the officially determined closing price.
That is all a chart contains, plus volume. Everything in technical analysis is built from those 5 numbers.
The 3 chart types
Line chart. Plots the close, and connects the closes with a line. It discards the open, the high and the low. That is 3 of the 4 numbers.
Bar chart, also called OHLC. A vertical line from the low to the high. A short tick on the left marks the open. A short tick on the right marks the close. This is the traditional Western format and it dominated until the 1990s.
Candlestick chart. A rectangle, called the body, drawn between the open and the close. Thin lines above and below, called wicks or shadows, reach to the high and the low. The body is filled or coloured one way if the close was below the open, and the other way if the close was above it.
Here is the fact that surprises most people:
A bar chart and a candlestick chart contain exactly the same information.
Same 4 numbers, same period, nothing added and nothing removed. Candlesticks are not a more advanced chart. They are a more legible drawing of the identical data. The body makes the open-to-close distance a filled shape rather than 2 small ticks, and human eyes read filled shapes much faster than they read tick marks.
That is a real advantage and it is worth having. It is not extra information, and anybody telling you candlesticks reveal something bars cannot is mistaken about arithmetic.
What the line chart is actually good for
A line chart is not the beginner's version. It is a deliberate filter, and there are 3 situations where it is the correct choice.
Comparing several instruments. Four candlestick series on one screen is unreadable. Four lines is clear.
Very long histories. Across 30 years, daily ranges are noise and the closes carry the structure.
When the intraday range is misleading you. Some traders cannot ignore a long wick. A line chart removes the temptation entirely.
There is also a reason the close deserves its special position. The close is not just the last price of the day. It is the price at which funds value their holdings, the price used for most settlement, and in both India and the United States it is determined by a special mechanism rather than by whoever traded last. More people care about the close than about any other price of the day, and that makes it a genuinely different number.
Scale: arithmetic against logarithmic
This is the setting that changes conclusions, and most people never touch it.
On an arithmetic scale, equal vertical distance means an equal number of rupees or dollars. A move from 100 to 200 takes the same space as a move from 1,000 to 1,100.
On a logarithmic scale, equal vertical distance means an equal percentage. A move from 100 to 200 takes the same space as a move from 1,000 to 2,000. Both are a doubling.
You care about percentages. Your account cares about percentages. A 50% fall costs you the same proportion of your money whether the stock was at 40 or at 4,000.
Rule: if the series has more than roughly tripled over the window you are looking at, use a logarithmic scale. Below that, it makes little difference.
Any trendline, channel or pattern drawn on a long-run arithmetic chart is describing the axis rather than the market. This single setting invalidates a great deal of long-term chart analysis published online.
Timeframe, and the boundary problem
A "daily" candle is a slice of a continuous stream of trades, and the slice boundary is a convention.
For a daily candle, the boundary is set by exchange hours, which is at least a real event. For everything shorter, the boundary is arbitrary. A 15-minute candle that starts at 9:15 covers a different set of trades from one that starts at 9:20, and the same prices produce different candles, different bodies and different patterns.
For a weekly candle, the boundary depends on whether your platform starts the week on Monday or Sunday, and on how it treats a market holiday.
The practical consequence is uncomfortable and true. A pattern visible on a 5-minute chart may not exist on a 6-minute chart of the same trades. A pattern that is real should survive a change of boundary. Most do not, and you can test this yourself in about 30 seconds.
What it tells you, and what it does not
The chart type tells you what has been kept and what has been thrown away. That is the whole content of this decision.
It does not make the underlying data better or worse. Switching to candlesticks does not improve your analysis; it improves your reading speed. Switching to a line chart does not simplify the market; it hides part of it and you should know which part.
And no chart type tells you anything about the quality of the data feeding it. An unadjusted price series drawn beautifully as candlesticks is still an unadjusted price series, and it will show you a 50% "crash" on the day a company did a 2-for-1 split.
The decision rule
Choose the chart type from the question, not from habit.
- Comparing several instruments, or looking at more than 10 years — line.
- Deciding where to place a stop, or judging a single session — candlestick,
because you need the range and where the close sat inside it.
- Any window where the price has more than tripled — logarithmic scale, not
optional.
- Judging whether a pattern is real — look at it on 2 adjacent timeframes.
If it only exists on one, it is a property of the boundary, not of the market.
Try this now
This is the comparison the whole article exists for. It takes about 5 minutes and you will not read a chart the same way afterwards.
- Pick 1 stock you own or follow. Open its daily chart, set to 6 months.
- Set the chart type to line. Look at it for 20 seconds. Write down 2 price levels where the stock appears to have stopped, and 1 sentence describing the overall story.
- Switch to bar (OHLC), same stock, same 6 months. Write down what you can now see that you could not see before. Be specific: name a date and what the day did.
- Switch to candlestick. Find the 3 largest-range days in the 6 months. For each one, write down whether the close was near the high or near the low.
- Now switch the price axis from arithmetic to logarithmic. If your stock has moved a great deal, check whether the 2 levels you wrote in step 2 still look like the same kind of level.
- Last step, 30 seconds. Switch the timeframe from daily to weekly. Look for the story you wrote in step 2. Note whether it is still there.
What you should see. Three specific things, and they are the same for almost everybody.
The line chart will have hidden at least 1 day with a very large range where the open and the close were close together. On the line chart that day is invisible. On the candlestick chart it is one of the largest events in 6 months.
The line chart will have hidden the gaps. Where the price jumped from one day's close to the next day's open, the line simply connects them and you cannot tell a gap from a normal move.
And on the weekly chart, at least 1 feature that looked important on the daily chart will have vanished into a single candle. That is not a fault in either chart. It is the answer to the question "at what scale does this matter", and it is a question worth asking before every trade.
Three real cases
1. The BSE Sensex since 1979 (India) — the axis that erases 25 years The Sensex uses a base period of 1978-79 set at 100. It has since reached 5 figures. Draw that whole history on an arithmetic axis and something absurd happens: the entire period from 1979 to about 2003 becomes a flat line pressed against the bottom of the screen. Inside that flat line sits the 1992 boom, when the index roughly quadrupled in months during the Harshad Mehta episode, and the collapse that followed. A quadrupling and a crash, invisible, because on an arithmetic axis a move from 1,000 to 4,000 is a small distance when the top of the chart is 80,000. Switch the same chart to logarithmic and 1992 is one of the most dramatic features on it. Same data. Different axis.
2. Amazon, December 1999 to October 2001 (United States) — the hairline that was a 90% loss Amazon's share price fell from its 1999 peak to its 2001 low by roughly 90% . Anybody holding it lost most of their money. Now open a chart of Amazon from 1997 to today on an arithmetic axis. That entire episode is a barely visible squiggle near the horizontal axis, because the price is far higher now. A reader looking at that chart would conclude the stock has never had a serious decline. On a logarithmic axis the 2000-2001 collapse is exactly as large as it felt at the time. This is the single clearest argument for the log scale and it takes 5 seconds to verify.
3. The Nifty 50, 3 and 4 June 2024 (India) — 2 numbers, 2 completely different days On 3 June 2024, after exit polls, the Nifty rose sharply. On 4 June, when the actual general election results came in, it fell heavily, with an intraday move from the previous day's high to the low of roughly 8% or 9%. On a line chart of closes, 4 June is 1 point lower than 3 June and the drawing gives you nothing else. On a candlestick chart it is an enormous body with the close well down the range, next to the previous day's tall green candle. Two of the most information-rich sessions in recent Indian market history, reduced by a line chart to a downward slope.
The question that resolves it
A novice asks: which chart type is best?
An expert asks: what am I about to decide, and which of the 4 numbers does that decision depend on?
A decision about where to put a stop depends on the low, so a line chart is unusable for it. A decision about whether to hold a 10-year position depends on the closes, so daily wicks are a distraction. There is no best chart. There is a chart that keeps what your decision needs and a chart that throws it away.
What would make this wrong
If the intraday range carried no information about future price, then the line chart would lose nothing and this article would be about aesthetics. That is a testable claim and you can test it on your own data: the range of a session, and the position of the close inside that range, are inputs to a great many published studies and are not noise.
The honest limits are 3.
First, more information is not automatically better. A candlestick chart on a 15-minute timeframe presents an enormous number of shapes to a human eye that finds patterns in randomness. For some readers, the line chart's filter is a net gain, and there is no shame in it.
Second, the log scale is not always correct. For a series that has moved within a narrow range, or for anything that can go negative or to zero in a meaningful way, the arithmetic scale is right. The rule of thumb about tripling is a rule of thumb.
Third, the claim that candlesticks and bars carry identical information is arithmetically true and psychologically incomplete. If a format makes you read faster and miss less, the format has done something real. It just has not added data.
In India
The close is not the last trade. On the NSE, the official closing price of a stock is a weighted average of the prices traded in the last 30 minutes of the session. If no trade occurs in that window, the last traded price is used. So the "C" in your daily candle is a calculated number, not something anybody paid.
This matters more than it sounds. You cannot assume you could have transacted at the closing price shown on your chart. Any strategy that says "buy at the close" needs a real order in the closing window, at whatever price is available then.
Trading hours. The equity session runs 9:15 to 15:30 IST, with a pre-open call auction from 9:00 to 9:08 and a closing session after 15:30. Your daily candle covers the continuous session.
Price bands truncate candles. Stocks outside the derivatives segment carry daily bands of 2%, 5%, 10% or 20%. A stock locked at its band produces a candle with no wick on that side, because the price was not permitted to go further. That flat edge is a rule, not a rejection, and it looks identical to a rejection on the chart.
Corporate actions are frequent. Bonus issues, splits and rights issues occur far more often at Indian companies than at large US companies. Confirm your platform is showing an adjusted series, and check whether it adjusts for dividends as well as for splits and bonuses. Two providers can show noticeably different 5-year charts of the same stock for this reason alone.
In the United States
The close is set by an auction. At 16:00 Eastern time the primary listing exchange runs a closing auction, and the price that auction produces is the official close. It is one of the largest single moments of volume in the trading day, because index funds must transact at it.
The session your chart shows is a choice. Regular hours are 9:30 to 16:00 Eastern. Pre-market trading starts at 4:00 and after-hours runs to 20:00. Most charting platforms default to regular hours only. Turn extended hours on and the same day's candle changes shape: the open moves, the high and low usually widen, and gaps between days shrink or disappear.
This is worth doing once deliberately. Take a stock that reported results recently, look at the daily candle with extended hours off, then turn them on. It is the same day and it is a different candle.
Limit Up-Limit Down replaces daily price bands. A stock moving too fast enters a short pause and then resumes, so US candles are rarely truncated the way Indian ones are.
Splits are less frequent at large US companies than bonus issues are in India, so unadjusted-data errors are less common but not rare. They still occur, and a 2020s share split at a very large company will produce a false 75% or 90% "crash" on an unadjusted chart.
Where they differ, and what that tells you
The 2 differences that change how you read a chart are what the close is and what a gap is.
The close is a calculated average over 30 minutes in India and an auction price at a single instant in the United States. What that tells you is about execution. An American trader can realistically transact at the official close by entering a market-on-close order. An Indian trader cannot transact at the official close at all, because that number is an average of prices that have already happened. Any rule you read that involves "entering at the close" needs translating before it can be used in India.
The gap is the larger difference. An American gap usually has prices inside it, traded in the pre-market session by real participants. An Indian equity gap is empty, because nothing traded between 15:30 and the next pre-open. The index is the exception: Nifty futures trade at GIFT City for most of the day and night, so for the index there is an overnight price record.
What that tells you is which imported rules to distrust. American writing about gaps often relies on the idea that the gap will be revisited because there are unfilled orders inside it. For an Indian single stock, there are no orders inside it, because there was no market inside it. The gap may still close. It will not close for that reason.
Carry this
- Line keeps 1 number of 4. Bar and candlestick keep all 4 and are identical to each other.
- Over a tripling or more, the log scale is not a preference.
- A pattern that only exists on 1 timeframe is a property of the boundary.
- In India the close is a 30-minute average. In the US it is an auction price.