Technical Analysis

Hockey Stick Chart

What is a Hockey Stick Chart?

A hockey stick chart is a line chart in which a sharp increase occurs suddenly after a short period of quiescence. The line connecting the data points resembles a hockey stick. Hockey stick charts have been used in the world of business and as a visual to show dramatic shifts, such as global temperatures and poverty statistics.

Key Takeaways

  • A hockey stick chart is a chart characterized by a sharp increase after a relatively flat and quiet period.
  • It is generally observed in scientific research measuring medical results or environmental studies. In cases of business sales, a hockey stick chart is represented by a sudden and dramatic increase in sales.
  • It is important to analyze whether the sudden increase is a permanent state of affairs or an aberration.

Understanding Hockey Stick Charts

A hockey stick is comprised of a blade, a small curve, and a long shaft. A hockey stick chart displays data low-level activity (y-axis) over a short period of time (x-axis), then a sudden bend indicative of an inflection point, and finally a long and straight rise at a steep angle.

The chart is typically observed in science labs, such as in the field of medicine or environmental studies. Scientists, for example, have plotted global warming data on a chart that follows a hockey stick pattern. Social scientists are also familiar with the chart. Some observations about the rate of increase in poverty have been delineated by this shape. The hockey stick chart can command immediate attention. A sudden and dramatic shift in the direction of data points from a flat period to what is visible in a hockey stick chart is a clear indicator that more focus should be given on causative factors. If the data shift occurs over a short time period, it is important to determine if the shift is an aberration or if it represents a fundamental change.

Business Example of a Hockey Stick Chart

Groupon Inc. has the distinction of being the fastest company in business history to achieve $1 billion in sales. It accomplished this in about two-and-a-half years, half the time of even Amazon and Google. Imagine sales of less than $100K in 2008 and $14.5 million in 2009. This is the blade part of the hockey stick. In 2010 the company had sales of $313 million, representing the upward bend or inflection point of the stick. Then in 2011, Groupon generated $1.6 billion in sales. Plotted on a graph with sales on the y-axis and time on the x-axis, the data clearly illustrates a hockey stick pattern. However, as successful as the company may have seemed at the time, the soaring revenues did not mean it was profitable. In fact, net losses in 2010 and 2011 were $413 million and $275 million, respectively, due to selling and marketing expenses.

Compete Risk Free with $100,000 in Virtual Cash

Put your trading skills to the test with our FREE Stock Simulator. Compete with thousands of Investopedia traders and trade your way to the top! Submit trades in a virtual environment before you start risking your own money. Practice trading strategies so that when you're ready to enter the real market, you've had the practice you need. Try our Stock Simulator today >>

Leave a Reply

Your email address will not be published. Required fields are marked *