Hey traders,
In this post, we will discuss 3 most popular types of charts.
We will discuss the advantages and disadvantages of each one, and you will decide what type is the most appropriate for you.
📈Line Chart.
Line chart is the most common chart applied by analysts. Reading financial articles in different news outlets, I noticed that most of the time the authors apply line chart for the data representation.
On a price chart, the only parameter that the one can set is a time period.
Time period will define a time of a security closing price. The security closing prices overtime will serve as data points.
These points will be connected with a continuous line.
Line charts are applied for displaying an asset's price history, reducing the noise from less volatile times.
Being simplistic, they can provide a general picture and market sentiment. However, they are considered to be insufficient for pattern recognition and in depth analysis.
Above, a line chart is applied for analysis of a long-term trend on Gold.
📏Range Bar Chart.
In contrast to a line chart, a range bar chart does not consider time horizon. The only parameter that the one can set is a price range.
By the range, I mean a price interval where the price moves. A new bar will be formed only once the prices passes the desired range.
Such a chart allows to completely ignore time variable, focusing only on price movement and hence reducing the market noise.
The chart will plot new bars only when the market is volatile, and it will stagnate while the market is weak and consolidating.
Accurately setting a desired price range, one can get multiple insights analyzing a range bar chart.
In the example above, one range bar represents 10 pips price range on EURUSD.
🕯Candlestick Chart.
The most popular chart among technicians and my personal favorite.
With just one single parameter - time period, the chart plots candlesticks.
Each candlestick is formed as a desired time period passes.
It contains an information about the opening price level, closing price, high and low of a selected time period.
Candlestick chart is applied for pattern recognition and in-depth analysis. Its study unveils the behavior of the market participants and their actions at a desired time period.
Each candle stick represents a price action within 4 hours on AUDUSD chart above. (time frame is 4H)
Of course, each chart has its own pluses and minuses. Choosing its type, you should know exactly what information do you want to derive from the chart.
What chart type do you prefer?
