Types Of Charts When Working In Financial Markets
- 1. Types of stock exchange charts
- 2. Types of charts in terms of time and display
- 3. Charts to work with binary options
- 4. Types of Forex charts
- 5. Types of stock charts
- 6. Types of cryptocurrency charts
- 7. Pros and cons of charts
- 8. Conclusion
- 9. Reviews
Types of stock exchange charts
A chart (the figure 1) is a sequence of prices most often plotted in accordance with a certain timeframe. As a rule, the ordinate of the chart displays the price scale, while the abscissa is used as the time scale. Asset prices are plotted from left to right so that the latest data is shown on the right side of the graph.
Charts enable you to rapidly obtain information about the situation on the market, in particular, to figure out the ratio of buyers and sellers in the market, the dominant trend, and the value of prices for a certain time. They also allow conducting technical analysis based on the information obtained and to forecast the further development of the situation in the market.
Stock charts can be classified by time and also by the way of displaying price changes. There are many types of charts, and they differ in terms of informativeness, the number of parameters as well as the applicability in different conditions. However, the most frequently used charts are the Japanese candlesticks, zone charts, line charts, and bar charts. These are the major charts actively used for any asset.
On the basis of the charts, technical analysis is conducted. For this purpose, they are informative and convenient enough. They enable the trader to navigate the market and clearly understand the current situation without spending too much time on calculations. However, the charts can also be employed for fundamental analysis. In the markets mentioned above investors mainly utilize daily as well as intraday charts, representing the smallest asset price movements.
Types of charts in terms of time and display
The change in the value of an asset on the chart is displayed based on the time — literally from seconds with a pipsing strategy to months and even years — the timeframes utilized in fundamental analysis. The price of the asset can be traced at any time of any time period. The time period utilized to group quotes when plotting price chart elements is known as a timeframe. On stock exchanges, the timeframe is set by the investor on the chart, depending on his objectives and strategy. In the market of binary options and Forex, charts normally have the following timeframes: 1, 5, 10, and 15 minutes, although any period of time can be used.
In binary options trading, the use of the minute chart is one of the most popular approaches, although it’s also one of the riskiest types of trading. The disadvantage of trading on the minute timeframe is that brokers cut payments when trading short-term options. Additionally, such options are difficult to forecast and there’s no enough time to conduct technical analysis.
In the Forex market, trading on the minute chart is also very risky because it suggests the use of a few indicators to determine the entry point to the market. trading. What’s more, the percentage of false signals is higher on the minute chart.
Five-minute, as well as fifteen-minute charts, are popular on the binary options market and Forex. For five-minute charts (the figure 2), many trading strategies have been developed.
Traders choose the required timeframe depending on how much time they can devote to trading. That’s why short-term charts and strategies based on them are more popular than those for a longer timeframe.
A line (zone) graph
Many traders don’t find it necessary to see the difference between line and zone charts (the figure 3) due to the fact the zone chart is just a line chart, which is perceived more clearly.
The line chart allows you to closely watch the price move of the chosen asset. As for the zone chart, it enables you to see the market maximus and minimums from which the price moves in the opposite direction. These values are known as zones.
For a substantial forecast just relying on the line or zone chart isn’t enough. You require tracking extra indicators or using more informative charts. However, the zone chart is good for making the first steps in trading.
The Japanese candlesticks are more informative than the zone chart. The main part of the candlestick is dubbed the body. It indicates the difference between the opening and closing prices. In order to indicate the behavior of the price contrasting colors are utilized, such as green and red. The green color shows that the asset price has tacked on by the end of the trading day, while the red color shows that the price has dived. The thin part of the candlestick is a «shadow».
In this case, the upper shadow indicates the maximum price, while the lower one shows the minimum. There’s such a point of view that the Japanese candlesticks are more visual than other graphs and enable you to make adequate decisions even on the shortest timeframes.
Bars are as informative as candlesticks, but they reflect the market situation differently and less clearly. A bar is a vertical line. Its upper point indicates the maximum price, while the lower shows the minimum. Horizontal serifs are drawn from the vertical line. The left serif indicates the opening price, while the right one shows the closing price. If the left serif is higher, the asset price has inched down, if the right serif is higher, the asset price has tumbled.
This type of display of asset prices optimally demonstrates the amplitude of the asset fluctuations within the timeframe set by the trader or broker. It enables you to determine the volatility of the asset price and observe not only the current direction of price movement but also the conditions for further movement.
Both bars and candlestick equally enable traders to forecast the direction of the trend, reversals, and also determine and build price levels on different timeframes, find entry and exit points with great accuracy, estimate the asset volatility.
Charts to work with binary options
Line and zone charts
The zone chart is considered to be basic for trading binary options (binary trading for beginners). Here the price dynamics is represented by a line, passing through the points that indicate prices. As a rule, this chart is used by newcomers, but not only by them. Most often this chart is used by novice traders, but not only. Not all strategies require detailed technical analysis.
The line chart (the figure 4) is the easiest graph to understand. It’s utilized in binary options trading to determine the general direction of the price that can be soaring, stable and diving. The chart isn’t suitable for detailed technical analysis because it doesn’t demonstrate a price gap. As for the line chart, it can be employed for short-term trading, for example, on a minute chart. Such timeframes have decent visibility on the line chart.
Any trading platform offers the trader to choose the type of chart, and the Japanese candlesticks are certainly available. That’s the most popular type of chart in this trading. To work with candlesticks, a mind-blowing number of strategies was developed.
The Japanese candlesticks for binary options show all the prices required to develop a strategy: opening and closing prices, highs and lows. When analyzing the market, traders pay attention not only to the color of the candlestick, indicating the direction of the market, but also to its length that points out who actually dominates the market, sellers or buyers, and how strong a drop or rise in the asset value can be.
However, you don’t need to carefully review the chart to make a good forecast. Over the long years of using the Japanese candlesticks, the key figures have been identified by investors. So, you can successfully use them to make rational tradition decisions. Investors look for such figures when trading on the candlestick chart.
There are three types of such figures:
- One of them indicates that the trend will continue in the future;
- Others show that the trend will change its direction in the nearer future;
- The third group indicates that the market situation is uncertain.
Here are some of the main figures:
- «A hammer» or «an inverted hammer» are figures indicating that the trend will soon change its direction. The hammer is made up of a short candlestick body as well as a long lower shadow. Depending on the color of the candlestick body, it becomes obvious what trend is being formed. A green hammer (or unpainted) is formed on a downtrend. It indicates that it makes sense to make a deal on the price increase since the market is oversold. An inverted red hammer is formed on an uptrend (painted). It demonstrates that the market is currently overbought and it makes sense to open a trading position on the price tumble.
- «A shooting star» is a candlestick with a short body of a painted or red candlestick and a long shadow facing upwards. These figures are formed on an uptrend, indicating a rapid reversal.
- «The bullish absorption» pattern is formed on a downtrend. It can be described as a painted candlestick, with an unpainted candlestick behind, the body of which is higher than the maximum of the previous one.
- «The bear absorption» looks like the painted body of the candlestick «absorbing» the unpainted body of the previous candlestick.
The given figure shows up on an uptrend and indicates a trend reversal. These aren’t all existing candlestick patterns, using which you can make successful forecasts when trading binary options.
A bar chart
A bar chart (the figure 6) is utilized in binary options trading less frequently. It’s because, in terms of informativeness, it’s inferior to the Japanese candlesticks. They provide roughly the same information. What’s more, they also form typical patterns. Some investors prefer bars simply because those patterns are more distinct on the bar chart.
The dynamics of the asset price fluctuations is more accurately visible on the bar chart. On the contrary, on a colorful candlestick chart, investors, in particular, newcomers can see non-existing patterns.
The increasingly popular Heiken-Ashi chart (the figure 7) appears to be an updated version of the traditional Japanese candlesticks. In this chart, every candlestick is associated with the previous one, and the opening price is displayed in the middle of the candlestick. To forecast the closing price, the sum of the closing and opening of the extrema should be divided by four. The given chart offers a more accurate forecast than the traditional Japanese candlesticks.
On this chart, the shadow of the candlestick indicates the trend strength. If the body of the candlestick is small, and the shadow is long, facing the direction, up or down, we can say that the trend is firm.
Renco charts (the figure 8) display the price dynamics in the form of rectangular white or black blocks. When the price jumps or dives by the value set by the investor, another block shows up. If the price slumps, the block gets black. On the contrary, if the price heads north, the block is white (other colors may be utilized).
Every block has a certain number of points. The chart isn’t built on time but on the price change in points. Renko elements clearly indicate either a downward or upward trend. At the time of the reversal, blocks of different colors show up on the chart, enabling traders to correctly interpret the signals.
Since the Renko chart perfectly indicates the trend, investors have developed rules that work on this chart in most cases. So, one should buy on unpainted blocks, especially if there are more than two, and sell on painted ones. Additionally, unlike the Japanese candlesticks, the Renko chart makes it easier to make decisions because fewer blocks are formed for a trading session, which can’t be said about traditional candlesticks.
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Types of Forex charts
Bar and candlestick charts are mainly used in the foreign exchange market. The candlestick chart is the most popular here. However, there’re a few charts also utilized in Forex trading, although less frequently. These are tick and tic-tac-toe charts.
A bar chart
The vast majority of the charts, often portrayed in the basics of Forex trading in books and on educational websites, are exactly bar charts. However, stock traders usually use the candlestick chart.
Four price types are available when trading on the bar chart: open, high, low and close. That’s why the chart is also known as OHLC, which stands for «open, high, low, close». As a rule, most trading programs set the duration of the bar in 1 day. However, on the bar chart, you’re free to set a timeframe corresponding to one bar at 5 minutes, 15 minutes, 60 minutes, and so on. Forex traders usually use 15-minute, hourly, 4-hour as well as daily bars.
«A flag» and «a pennant» appear to be the most common patterns on the bar chart. «The pennant» resembles a symmetrical triangle, while «the flag» is similar to a parallelogram. Both patterns are formed from one to three weeks. In fact, they represent a sort of pause of the current trend. However, they’re temporary, dropping a hint that a well-pronounced trend will resume.
A tick chart
A tick chart (the figure 9) isn’t tied to the timeline (although it’s possible to tie it to time). When the price starts changing, the chart makes a small horizontal move – «a tick». In other words, a tick shows every minor change in the quote. The number and frequency of ticks actually determine the market activity, and the investor can effectively determine the support and resistance levels. By the way, the tick chart itself isn’t employed for technical analysis. Nevertheless, it can improve the overall accuracy of your analytics.
«A tic-tac-toe» chart
We can hardly call the «a tic-tac-toe» chart common. So-called «tacs» turn out to be its cornerstone element, indicating the price growth and demand. As for «toes», they stand for supply. In one column we can see only «tacs» or only «toes». You will require some time and substantial knowledge of the market to learn to work on this chart. However, it already has many followers. It’s because this chart has some advantages. So, you can even build it on a sheet of paper. Additionally, it’s easy to determine the trend on this chart, and it’s easy to determine the resistance and support levels. What’s more, in this case, the analysis isn’t affected by minor price fluctuations, also known as «market noise».
A three-line break chart
A three-line break chart isn’t commonly used. However, it forecasts the market more accurately than the Japanese candlesticks. The chart combines the features of the bar chart and the«tic-tac-toe» one. On the chart, the opening or closing price is represented as a line, that’s the key line. The remaining lines start at the price level of the previous one. If a rise in the value of the asset is expected, a white line is used. If a dive is expected, the line is black. If there’re three lines of the same color, the trend direction is confirmed.
A Kagi chart
A Kagi chart is one of the non-standard chart types. It’s considered to be a variation of the «tic-tac-toe» chart. Well, it doesn’t take into account the time parameter. However, it enables you to get a deep understanding of the trends with great ease. By the way, it’s possible to build this chart on paper.
The Kagi chart is built by parallel vertical lines connected by short horizontal lines of the equal length. In this case, a vertical line stands for the price movement in one direction. When the line advances by a certain amount, another vertical line is built, connected to the previous horizontal line. The price line can be thick called Yang, and thin dubbed Yin.
The shoulder line connects the surge line and the decrease line, while the waistline connects the decrease line and the surge line. When Yin is higher than the previous shoulder, it turns into Yang. When Yang is below the waistline, it becomes Yin.
You need to adhere to certain rules when working with the Kagi chart. You require buying Yang at the beginning and selling Yin at this time. You should mark resistance and support levels. A reverse will follow 10 shoulders and waists in a row.
Types of stock charts
The movement of asset prices in the stock market is generally displayed by line charts, bar charts as well as the Japanese candlesticks. Line charts are utilized to rapidly determine a trend. Moreover, a line chart is good for studying price dynamics for several years. The media utilize exactly the line graph when it comes to highlighting the situation in the stock market.
To confirm the information of the line chart, a volume chart is utilized. It shows the overall number of deals concluded for the trading day. For instance, an increase in volume actually confirms the current trend, while a tumble might indicate a reversal.
In the stock market, bar charts are preferable because in a compact form they offer more summarized information for a certain period of time. However, it’s getting difficult to interpret the bar chart, if many periods are analyzed. Traders make use of daily or even shorter bars.
Bar charts are the most popular with stock traders. However, the Japanese candlesticks are often utilized too because it’s believed that the patterns formed on the candlestick chart over several days enable traders to get crucial signals about market trends.
Types of cryptocurrency charts
The candlestick chart is most often utilized by default on crypto exchanges. However, the line and bar charts are used too. In fact, the very analysis of the information presented on the chart of the crypto exchange doesn’t differ from the analysis of Forex or stock market information. Moreover, all types of other charts are applicable to it.
However, since the crypto market appears to be the most volatile, it’s vital to forecast the price movement beforehand. Therefore, information from a single chart can’t be enough here. Moreover, charts that suggest a long analytical work aren’t suitable too. When working with the chart on the crypto market you need to have other tools at hand to conduct checks from time to time. For instance, you can take advantage of such an indicator as the volume of crypto trading.
As a rule, trading volume indicators at the bottom of the chart on a crypto exchange. On this chart, the height of every column actually corresponds to the trading volume for a certain period. Analysis of the volume of trades enables you to forecast market sentiment – a leap or dive in prices. In addition, for the crypto market information of an order book is crucial. You should also pay attention to indicators of all deals made for a certain period of time (a vertical volume). The news background is crucial too.
Pros and cons of charts
In each market, one should consider the pros and cons of charts taking into account the specific situation in each case, not to mention the trader’s objectives. For example, a line chart would suffice to determine the general direction of the market. However, it’s not good for technical analysis, as it doesn’t ensure qualitative forecasting.
On the other hand, when trading on short and very short timeframes, there’s no particular difference in chart types, and the main thing is that it should show the price and a certain period, such as a tick, which stands for a price change. When dealing with digital coins, many investors look only at the order book and trade only by means of it. They utilize the chart just to spot the emerging trend or confirm the current one.
For all considered types of stock trading, the candlestick chart appears to be the main solution. For traders, it’s ideal in terms of clearness. It’s used by all brokers on their trading platforms. It’s informative enough for any type of trading. Many investors utilize the bar chart as a full-fledged analog of the Japanese candlesticks. As for the line graph, it’s employed for tracking general market trends. As a rule, it’s used in stock trading. Besides this, the line chart is also good for trading on short timeframes. The tick chart is quite popular with Forex traders.
At the same time, in every type of trading, a lot of other types of charts are presented. They enable investors to analyze the market more deeply. As a rule, such advanced charts are utilized by more experienced investors to correct information of common charts.
Of course, traders are free to use any chart. However, the method of graphical display of the price data isn’t as important as the trader’s ability to analyze chart data. For all charts to be utilized in any market, extra training is required. You shouldn’t enter the market unaware of the specifics of each of the charts, how to set the timeframe, and what the chart elements stand for, in particular, difficult ones. You also require learning to see the figures on such charts as candlesticks and bars. Before getting down to real trading, you’d better practice your chart reading skills on a demo account.