What Is a Line Graph?

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What Is a Line Graph?

You see, a line graph, which you might also call a line plot or line chart, connects data points with a smooth line to show how values change over a sequence. I use them to visualize shifts in a variable across time intervals. In finance, they're common for displaying historical price movements of assets or securities.

You can compare line graphs to other data visualizations like bar charts, pie charts, or even candlestick charts in trading.

Key Takeaways

Let me break this down for you: a line graph links individual data points that represent quantitative values over a set interval. It's plotted on two axes—the horizontal x-axis for the independent variable and the vertical y-axis for the dependent one. In technical analysis, these graphs create visual reps of values over time, covering price changes and volume.

Understanding Line Graphs

Line graphs feature data point markers connected by straight or curved lines. You'll find them useful across fields for showing relationships between dependent and independent variables.

In finance, I often see them representing values over time, such as security prices, company revenue, or major stock index histories. They're great for comparing securities too. In technical analysis, they visualize trends in prices, volume, and market sentiment.

But watch out for limitations: if there are too many data points, the graph loses clarity. You can also manipulate them visually, like by adjusting axis ranges to exaggerate changes.

Tip

You can build line graphs manually or with software like Microsoft Excel, which speeds things up and boosts accuracy.

Constructing a Line Graph

You draw line graphs on two axes: the horizontal x-axis and vertical y-axis, intersecting at (0,0). The x-axis is independent—its values don't rely on measurements—while the y-axis is dependent, changing based on x-axis values.

Label each axis with the data type it measures, and divide them into suitable increments, like days. For stock price changes over two weeks, the x-axis would show trading days, and the y-axis stock prices.

Typically, you use the closing price as the data point when tracking stocks. For instance, if a stock closes at $30 on day one, that's your point at (1, $30); $35 on day two is (2, $35).

Plot each point and connect them with a line to show value changes. An upward slope means increasing values; downward means decreasing.

Types of Line Graphs

There are three main types, each based on the same principles but suited to different situations.

Simple Line Graph

This is the basic one: it tracks just one dependent variable with a single line connecting all points. All data relates to the same item, aimed purely at showing changes over time. You can't compare variables here since only one is charted.

For example, if the x-axis is time and y-axis is year-over-year price change for U.S. consumer goods, you'd see one line for the Consumer Price Index, illustrating annual inflation.

Multiple Line Graph

Here, you chart multiple dependent variables against one independent variable, often time, using different colored lines for distinction. Lines don't cross between variables.

Take the Consumer Price Index again, but now with lines for medical care, commodities, and shelter. You can see which category had higher inflation in specific periods, like commodities in July 2022.

Compound Line Graph

Similar to multiple, but variables stack on each other to show total quantity alongside individual relationships.

In an EPA example, drought levels from abnormally dry to exceptional are stacked, with areas shaded to show total U.S. land affected by year.

Parts of a Line Graph

Line graphs can vary, but high-quality ones include certain features.

Title

Put a title above to explain what the graph depicts succinctly. It helps you understand without extra context, like 'Level of U.S. Dry Land By Year, 2000-2015'.

Legend

This explains each dependent variable and how to tell data sets apart, like color codes.

Data

Each data item ties a dependent to an independent variable, creating the points that form lines. Multiple sets might combine in one graph, and companies often have analysts to ensure data integrity.

X-Axis

This runs horizontally at the bottom, often related to time like months or weeks.

Y-Axis

This is vertical on the left, counting measured items; it might start at zero or higher if needed.

Line

The line connects points for a dependent variable, showing increases or decreases over time. You can compare multiple lines if they're over similar periods.

Tip

If you want to mix data types, programs like Excel can combine line and bar graphs.

Creating a Line Graph in Excel

You can make line graphs in Excel for trends over time, especially with text labels, dates, or numeric x-axis labels. Here's how: Enter column headers in Row 1 for data sets. Put x-axis values in Column A, like years. Fill in your data figures. Select the range, including headers if wanted. Go to Insert tab, Charts group, click Line symbol, then 'Line with Markers' for a graph with points connected by lines.

Uses of a Line Graph

Line graphs suit specific purposes based on data. Use them for tracking changes over time, with time on x-axis and quantity on y-axis. They're good for smaller changes by adjusting y-axis increments. Compare changes across groups easily with colors. They work best with continuous data, like time series, not discrete sets where bars might fit better.

Explain Like I'm Five

A line graph simply shows how things relate and change, often over time, so you spot highs and lows easily. Investors use them to track stock prices and decide when to sell for profit.