The representation of stock prices can significantly distort the interpretation of price movements. Different chart types and misleading scales mean that investors often perceive course courses differently than they actually are. Investors should know.
• Chart analysis as a popular tool for experts and private investors
• Display can specify room for interpretation
• Attention of deceptive representations
Basics: Chart analysis
The technical analysis – also called chart analysis – deals with the investigation of historical course courses and chart formations to make predictions about the future development of a securities. Fundamental company data is not taken into account. Instead, the analysis focuses on typical course patterns, supports and resistance to determine the ideal time for purchase or sale.
Although the scientific relevance of the technical analysis is not clearly proven, many investors view it as a valuable tool. Therefore, it can also make sense for private investors to understand basic chart formations.
Charts can represent developments distorted
Professional financial investors often deal with the analysis of Kurscharts in order to identify the best purchase or sales times for securities. Many private investors also regularly observe the stock exchange courses, but caution is advised, warns David Bienbeck, asset manager at Albrech & Cie. “Charts can mislead and lead to acting out of an impulse,” he explains “her provision”.
At first, many investors do not suspect that there are different methods when presenting stock prices – some aptly reflect reality, but others can distort, explain “the investment”. The latter are not fundamentally wrong, but often only show part of the truth and are widespread. Exactly this presentation can tempt private investors to make emotional decisions that could harm their assets.
Investors often make their decisions based on the course of a share – but as it is perceived, the type of representation is largely dependent on the type of representation. There are two common variants: linear and logarithmic charts.
The difference between logarithmic and linear charts is the presentation of price changes. Logarithmic charts represent percentage changes, regardless of whether the course increases by 2 percent at 20 or 200 points, explains Jörg Scherer, head of technical analysis at HSBC Germany according to “your provision”.
In contrast, linear charts show absolute changes. A price increase by 20 or 200 points is depicted as identical movement on the scale, although both mean 2 percent gain. As a result, the greater value of the absolute value of a securities has a steeper effect.
Logarithmic charts compensate for this distortion by visually increasing the graph at high price values. This makes price movements better comparable, especially with heavily fluctuating base values.
However, logarithmic and linear charts are not always far apart. The shorter the period under consideration and the more stable the course, the lower the difference. If you are only interested in the development of the past one to two years, you can also work with a linear chart. However, there is a restriction: Logarithmic calculations do not work for negative values, for example in the case of government bonds with negative returns.
Misleading charts: frequent tactics
Diagrams can also be deceptive without it becoming apparent at first glance. Misleading representations can cause data to be distorted and incorrect conclusions are drawn. A common method is the manipulated y-axis, according to the chartexpo, in which the zero point is cut off. As a result, even small differences appear to be exaggerated. Uneven scales can also make data appear more important or less important than they actually are.
Another problem is selective data selection, also known as “raisin picking”. Only certain periods or values are presented that support a desired statement while other information is left out. This can lead to a falsified perception of trends. The selected diagram type also plays a crucial role: not every visualization is suitable for all data records, and an incorrect representation can have a strong influence on the interpretation.
Another common trick is the distortion of the axes to make trends appear more dramatic or flatter. If the x-axis is stretched, large changes can be laminated, while a compressed y-axis is disproportionately emphasized. In addition, irregular intervals are sometimes used on the axis, which can distort the perception of data.
What investors should consider
If you want to interpret diagrams correctly, you should always critically question whether scales are manipulable, important data is missing or a certain presentation was chosen to underline a certain statement. A closer look at the axes, the selected period and the complete data helps to protect yourself from misinformation.
Editor finance.net