Charts present price action to traders like you across the world. Today, most traders start with candlesticks but they are relatively new to traders in the Western Hemisphere. The other options have clear functions that may help you see the forest for the trees and trade more effectively. This article will walk you through the methods used historically and share with you why some traders prefer one chart construction over the other. Charts are the starting point of any technical or price action based trader.
A price chart is nothing more than a graphical display of price over a fixed amount of time. However, the charts help a trader ask the market about the market so that a trend is clear or trade opportunity can become clear. Charts have been around since the s when rice traders in Tokyo began plotting price on paper. Specifically, the look at price over a fixed period of time to find patterns that they could profit from. To their credit, Japanese Technical analysis in the form of candlesticks is still a prominent form of price action analysis today.
When technology picked up at the turn of the 20 th century, the ticker tape became the mainstay of brokerages and professional traders. Getting sore at the market doesn't get you anywhere.
Today, computers allow traders to come up with any type of chart they wish in a matter of seconds. The goal of any trader on any chart is to use the chart they are comfortable with to identify a high probability opportunity. The visualization of the chart can be anything from a line, a bar, or a candlestick.
If the real body open to close relationship takes up a majority of the candle, then you have a trend candle because the price closed near the periods end.
If the wick high to low relationship takes up a majority of the candle, then you can be presented with a flashing-light so to speak of indecision which can warn you to get out of the trade if you were trading with the trend or to look and revers the move off of the emotional over-extension. While bringing you the same information as the candlestick charting technique, the bar chart has a little less flare. The Bar chart clearly displays the open and the close as well as the high and low but lacks the color.
Traders often look at bar charts to observe range comparisons. Many traders believe the close is the most important price of the day and that is where the line chart shines. The simplicity of line charts is especially prevalent in well-defined trends.
To give some credit to this simplistic chart, Jamie Saettele, our Sr. Technical Strategist, uses lines charts often in his Elliot Wave analysis. You should now have a comfortable grasp on the 3 main forms of charts. More importantly, you can also see the benefits of each so that you can choose the one that is right for you. DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.
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