Investors use mainly four kinds of charts depending on their skills and the information they are seeking. The different chart types which are used in technical analysis are line chart, candlestick chart, bar chart and point and figure chart.
Among these four charts, the most fundamental charts are the line charts. They represent the closing prices through a connecting line which forms over the closing prices over a particular period of time. Line charts do not show any trade range which can give information about various prices such as low, high and opening prices. The only value that is represented in the line charts is the closing value as it is considered as the most vital price in the entire stock data as opposed to high, low or the opening prices.
Bar charts are most popular method for technical analysis throughout the world. It adds many new bits of information to each and every data point present on the chart. Bar charts comprise of a series of upright lines which stand for each data point. Vertical lines in the chart indicate the low and high rates for a particular trading period as well as the closing price. On the other hand, Horizontal marks indicate the opening and closing balance. Investors must use the bar chart pattern and indicator before investing. When the opening balance is less that the closing balance, the bar is shaded in blank color which represents up period of a stock. On the contrary, when the stock’s value depreciates, that is the closing balance is lesser than opening values, then the bar is colored red.
Candlestick charts are constructed in more visually identifiable way. They are quite similar to bar charts. They also have a thin vertical line which shows high and low of the market. It is easy to read the candlestick chart. The difference between open and close are identified by a wide bar on the vertical line. Like bar charts, candlestick chart also use lots of colors to illustrate the up and down movements during the period of trading. Candlestick chart uses the white color when the market stock is up and when the stock is down they use red or black color. When the price of the stock closes above that of the previous day, but below than the price on which the day opened, the color of the candlestick is black.
Point & Figure Chart
The point & figure chart is not too common amongst the technical traders. It represents price movement but does not concern itself with volume and time in point’s formulation. The point & figure chart eliminates noise from the stock that can cause distraction in the views of the traders towards price trends. These charts also neutralize skewing effect of time on chart analysis.
The charts are the most basic aspect of technical analysis in the forex market. Understanding and interpreting these charts is of immense importance to be successful in the forex trading market.