Types of Price Charts for Trading

The 3 most common and basic forms of price chart are: Line Chart, Bar Chart, and Candlestick Chart.

Line Chart :

A line chart is a graphical representation of an asset’s historical price action that connects a series of data points with a continuous line. This is the most basic type of chart used in finance, and it typically only depicts a security’s closing prices over time.

  • A line chart displays information as a series of data points connected by straight line segments.
  • A line chart is a way of visually representing an asset’s price history using a single, continuous line.
  • Line charts usually only plot the closing prices, thus reducing noise from less critical times in the trading day, such as the open, high, and low prices.
  • Line charts are simplistic and may not fully capture patterns or trends.

Bar Chart :

A bar chart or bar graph is a chart or graph that presents categorical data with rectangular bars with heights or lengths proportional to the values that they represent. The bars can be plotted vertically or horizontally. A vertical bar chart is sometimes called a column chart.

  • A bar chart visually depicts the open, high, low, and close prices of an asset or security over a specified period of time.
  • The vertical line on a price bar represents the high and low prices for the period.
  • The left and right horizontal lines on each price bar represent the open and closing prices.
  • Bar charts can be colored coded where if the close is above the open it may be colored black or green, and if the close is below the open the bar may be colored red.

Here’s an example of a price bar :

Open: The little horizontal line on the left is the opening price

High: The top of the vertical line defines the highest price of the time period

Low: The bottom of the vertical line defines the lowest price of the time period

Close: The little horizontal line on the right is the closing price

Candlesticks Charts

Candlestick charts are a technical tool that packs data for multiple time frames into single price bars. This makes them more useful than traditional open, high, low, close (OHLC) bars or simple lines that connect the dots of closing prices. Candlesticks build patterns that may predict price direction once completed

  • Candlestick patterns are technical trading tools that have been used for centuries to predict price direction.
  • There are dozens of different candlestick patterns with intuitive, descriptive names; most also have a corollary pattern between the upside and downside. For instance, an “abandoned baby top” has its corollary in an “abandoned baby bottom;” “tweezer bottoms” have their upside corollary in “tweezer tops.”
  • Traders supplement candlestick patterns with additional technical indicators to refine their trading strategy (e.g., entry, exit).
  • Candlesticks are based on current and past price movements and are not future indicators.

In the following example, the ‘filled color’ is black. For our ‘filled’ blocks, the top of the block is the opening price, and the bottom of the block is the closing price.

If the closing price is higher than the opening price, then the block in the middle will be “white” or hollow or unfilled.

In the following example, the ‘filled color’ is black. For our ‘filled’ blocks, the top of the block is the opening price, and the bottom of the block is the closing price.

If the closing price is higher than the opening price, then the block in the middle will be “white” or hollow or unfilled.

The advantages of candlestick charting are:

  • Candlesticks are easy to interpret and are a good place for beginners to start figuring out chart analysis.
  • Candlesticks are easy to use! Your eyes adapt almost immediately to the information in the bar notation. Plus, research shows that visuals help with studying, so it might help with trading as well!
  • Candlesticks and candlestick patterns have cool names such as the “shooting star,” which helps you to remember what the pattern means.
  • Candlesticks are good at identifying market turning points – trend reversals from an uptrend to a downtrend or a downtrend to an uptrend. You will learn more about this later.

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