A stock line chart draws one line through the closing price of each period: daily closes on a daily chart, weekly closes on a weekly chart. Time runs along the horizontal axis and price runs up the vertical axis. You can see the direction of the price at a glance. You can't see how far it swung inside each period, because the open, high and low are not plotted.
What the line is made of
StockCharts.com co-founder Chip Anderson put it this way in a March 2009 ChartWatchers article: "Line charts are created by plotting a line between the closing prices for each period set on the chart." On a daily chart that means one point per trading day, joined to the next.
The close is the price chosen for a reason. In Stock Charts For Dummies, Lita Epstein and Greg Schnell write: "Because the closing price for a stock is the most important price, the line chart connects closing prices rather than the highs from each day or the lows from each day."
Anderson also notes that "a line chart is plotted by default when only end-of-day (closing) prices are available for a symbol." That is why line charts appear for funds, indexes and older price histories where intraday data is missing.
How to read it
Axes
- Horizontal axis: time. Its span (one day, one year, ten years) controls what the line can show.
- Vertical axis: price, in the asset's quote currency.
- Each point: one period's close. The line between two points tells you nothing about prices traded between those closes.
Direction and trend
Anderson writes that line charts "are useful to help visualize the direction of prices" and that "the extent of rallies and reactions in trends can also be quickly deduced." In practice you read three things:
- Slope: rising, falling or flat over the window you picked.
- Swing points: whether each peak and trough sits higher or lower than the last. Higher highs and higher lows describe an uptrend, and lower highs and lower lows describe a downtrend.
- Size of moves: how far each rally or pullback travelled compared with the ones before it.
Timeframe
The same stock can look like it is rising on a one-month chart and falling on a five-year chart. Choose the window that fits the question before you read the slope, and check at least one longer window for context.
Linear or logarithmic scale
The vertical axis can be scaled in two ways, and the choice changes the shape of the line.
- Arithmetic (linear) scale: equal dollar moves take up equal height.
- Logarithmic scale: in Epstein and Schnell's words, "the scale keeps a 10 percent move the same height starting at any price point on the chart."
On a linear chart, a stock's early gains can look like a flat line next to later moves that are smaller in percentage terms but larger in dollars. A log scale corrects that. The Stock Charts For Dummies guideline is: "Use arithmetic scales on short-term charts (under a year)" and "Use logarithmic charts for long time frames."
Rebase a price to 100
Enter a starting price and the price now to see where the line sits on a chart rebased to 100.
| Price on the chosen base date | Price now | Rebased value (start = 100) |
|---|---|---|
| 100 $ | 50 $ | 50 |
| 50 $ | 100 $ | 200 |
| 100 $ | 100 $ | 100 |
- Both prices are your own inputs, not figures from any source.
- Above 100 means the asset gained since the base date; below 100 means it lost. A +100% gain followed by a −50% loss lands back at 100.
This rebases one price pair only: it does not adjust for splits or dividends, pick a base date for you, or say anything about future prices.
A dot is placed for each closing price, and a line then connects the various dots.
Check that the history is adjusted
A raw closing-price line can show a crash that never happened. Corporate Finance Institute's example: after a 2:1 stock split, a $100 share becomes two $50 shares, so an unadjusted line drops by half while the holder's total value stays the same.
Adjusted prices remove that break. Yahoo's help page defines the adjusted close as "the closing price after adjustments for all applicable splits and dividend distributions." Split multipliers come from the split ratio, so a 2-for-1 split multiplies earlier prices by 0.5. Dividend multipliers are based on the dividend as a percentage of the prior close. For any chart covering more than a year or two, check whether the line uses adjusted or raw closes.
Comparing several assets on one chart
Two raw price lines on one axis mislead when the assets trade at very different prices. The usual fix is rebasing. FE Training describes it as resetting all prices "to a base figure, commonly 100," using "100 x (Stock Price Now / Starting Stock Price)." Once every line starts at 100, the gaps between them show relative performance over the window.
Two cautions apply:
- The start date drives the result. Move the base date and the ranking can change.
- Percentages are asymmetric. A +100% gain followed by a −50% loss returns to the starting value, so long rebased charts are easier to read on a log scale.
What the line leaves out
- Intraday range: Anderson writes that open-high-low-close (OHLC) bar charts "provide volatility information that line charts lack." A stock that falls sharply during the day and recovers by the close leaves no mark on the line.
- Open and gaps: the line runs straight from one close to the next, so it can't show a gap at the open.
- Volume: a line chart has no volume. Volume is usually plotted in a separate panel.
Line chart or bar chart
| Question you are asking | Better fit | Why |
|---|---|---|
| Which way has the price been moving? | Line chart | One clean series of closes, with less noise |
| How far did it swing within each day or week? | OHLC bar or candlestick chart | Plots open, high, low and close per period |
| How did several assets perform against each other? | Rebased line chart | Common starting point of 100 |
| What happened over 10+ years? | Line chart on a log scale, adjusted prices | Equal percentage moves at equal height, no false split drops |
Limitations: this guide covers chart construction and reading only. It does not test whether any chart pattern predicts future prices, and it is not trading advice.
