Types of Charts in Technical Analysis – Line, Bar and Candlestick ChartsLast Updated Date: May 12, 2022
Here, we will discuss about various types of charts used in technical analysis of a stock, derivative commodity or currency.
A technical analysis of the chart is focused on finding out the patterns and market trends.
The trader will be able to do this with the help of various Technical Chart types and having an understanding of the chart functions.
It is imperative to understand how to interpret charts even if the trader has no experience. He has to understand the basics of simplifying a simple technical analysis chart.
This article will focus on the different types of charts that the trader should expect in technical analysis.
Types of Charts in Technical Analysis
To start with the basics, there are three major types of charts applicable for technical analysis and the list includes candlestick, bar, and line chart.
The same price data is in place to create these. However, the display and interpretation of the data is different.
With an understanding of these charts, the trader will be able to make informed decisions regarding stock and other commodity markets.
There are several types of charts apart from these three. However, we have discussed the top three in the article here, as many traders trust them and use the same worldwide.
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Line Charts – Used in Technical Analysis
These charts are better for stock trading and it uses a Holistic market overview that eliminates the shifting data.
Even the beginners will be able to understand this chart type and the support it provides to understand trading without influencing the emotions is its greatest advantage.
The chart shows the closing price and only that. The current closing price will be linked to the previous pricing. This concept makes a continuous line. The newbie trader will find it easy to follow.
Apart from trading purposes, one can find it in television advertisements, newspapers, and other website articles for easy understanding.
Besides, the chart has lesser information compared to a candlestick or a bar chart. But to have a simplistic market review, this would be helpful.
Another major advantage of this chart is that it can help the trader in managing their emotions as it uses only neutral colors for the depiction.
The chart eliminates the movements of different colors that might distract the trader from a major point. Having that said, experienced traders need more information unlike in the line chart.
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Bar (HLOC) Charts – Used in Technical Analysis
The bar charts are better for Stock trading, Forex and commodities. It is what the traders prefer with some average experience in the industry.
The chat uses the price data to find out the trends and other entry points or resistance areas that the trader needs to give his attention to.
One primary advantage of this type of chart is that it helps the trader in gaining more detail about the data and the insights it can provide.
The chart displays low, high, and open prices apart from the closing prices for every period specified under the bar.
The vertical line depicts high and low prices, while the dash which is present left to the bar has an opening price and on the right stands the closing price.
The colors are identifiable and bright as green is used for closing, red for the down. This indicates the trader about the market sentiment present for that period. Again, the newbie traders will not find it efficient.
They are most likely to have a distraction with the colors. Only an intermediate trader with an understanding of the basics and market sentiment will want it. Anyone putting all of these to use will find this chart beneficial.
There is a similarity between the candlestick chart type and the bar chart which is the visibility it provides while displaying multiple data.
The bar chart, however, brings a clean market view comparatively. If we eliminate the bold color from the chart, then it becomes easier for the trader to take a look at the market trends with an overview.
History of Candlestick Concept
Before discussing the candlestick charts, it is important to understand the history of Japanese candlesticks.
As per the name, these candlestick models originated from Japan and the early usage will take back to the 18th century.
Though the idea of candlesticks and different models have been in existence for a long time and we can determine it as one of the old forms of pricing analysis, the rest of the world was clueless about such procedures.
Around the 80s, a trader accidentally discovered this idea and introduced the same to the rest of the world and he even wrote his own book titled “Japanese Candlestick Charting Techniques”.
This is one of the books preferred by many traders until now. The patterns in the candlesticks still have a Japanese name giving it a traditional touch.
Candlestick Charts – Used for Technical Analysis
The candlestick charts are mostly what we use for the same purposes as the bar chart and are helpful for intermediate and expert traders. Just like the bar chart, it uses preferences from the trader to present the insights on the data gathered.
These charts are easier on the eye unlike the bar charts considering its finishing in the display. The HLOC prices will be on display on the board for every period designated for every candle.
While the body of the candlestick represents the opening and closing details, the wicks indicate the high and low pricing for a particular period. The colors of the candles are dependent on the setting that the trader can choose.
The green candles are focused on the price closing higher than its very opening price and this is termed as bullish Candle in general. The red one means the price closed lesser than its opening price which makes it a bearish candle.
By far, this has been one of the most popular forms of charts preferred by traders for technical analysis worldwide.
With this chart, the trader has more details making it easy for him to analyze the details.
Analyzing Technical Charts
The charting techniques completely differ according to the strategy. There is a usually common strategy used by the trader and the market he is familiar with.
The trader must be familiar with the strategy in order to implement it in an accurate manner. The chart analysis based on the strategy helps in the consistency factor.
In this, the data is either information or simply noise. As a trader, it is important to understand that he must indulge in filtering out information from the noise.
For example, the long-term investor should be looking at weekly or monthly charts for better understanding rather than daily.
However, the latter would be sufficient for an intraday trader working on a couple of trades in a day. The one-minute chart would be efficient for high-frequency traders.
According to the stands of the trader, he must also choose a time frame that marks as one of the crucial tasks for success in trading.
Conclusion – Types of Charts in Technical Analysis
Here are the key takeaways of this article in a summary.
- Details regarding the technical analysis is provided
- There are three major types of charts that we can use for technical analysis
- Line charts being the best for new traders
- The bar charts have visual appeal and important details for intermediate traders with an understanding of the market sentiment
- A detailed overview of candlestick charts, its history, and usage is as well provided
- Analyzing technical charts is important to understand the difference between noise and information
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