Zone (Line) Chart
What is zone chart?
Zone chart (fig. 1) is a line chart that visually better to perceive, and it allows you immediately to see the highs and lows of the market, when the price moves in the opposite direction – these areas are called zones. Traders rarely distinguish between line and zone charts and rarely use them for trading, because such charts are not informative enough.
A line chart can be called a time chart because it is based on time intervals. On trading platforms it is possible to change the time scale, and a trader can see different stages of the trend. A line chart is a continuous line of price points at a certain time. As points are selected most often the closing prices (close), opening prices (open) or an average between the high and low for the selected timeframe.
What zone chart shows?
In fact, a line chart shows only the trend direction, without details of the trend formation and price fluctuations. The line chart is the most common way for a trader to be acquainted with any traded asset, because such chart allows quickly to determine dynamics of the price movement and to assume the prospects of the asset. Traders usually use line charts for this purpose.
However, on these charts it is possible to see the formation of the typical chart patterns and to trade them. Since there is little information on the line chart, the pattern may look more clearly than on another chart, it is easier to determine whether it is a real or false pattern.
The zone chart is available on each trading platform; it shows the maximum and minimum zones in the best way in comparison with other types of charts. The line chart shows data according to the principle of moving average; it accurately displays the price of the asset at the moment.
Zone chart benefits and drawbacks
The zone charts present information clearly on a time interval of any length. The advantages of the zone chart in an absence of excessive information that helps to determine more clearly the direction of the trend in a certain period and recognize patterns. In addition, the support and resistance levels are better visible on the line chart.
The disadvantages of the line (zone) chart are also associated with a limited amount of information. They do not show a price gap (gap), do not allow you to see the extremes in a certain time period and do not show changes in the asset price within the time interval. On the daily timeframe you can see an overall trend for the entire time of its formation, but you cannot understand what happen during each trading day. Therefore, the vast majority of traders use other charts in trading.
Zone chart analysis
The analysis of the zone chart is not complicated, but restricted to a small number of parameters. On the chart, you can study connection between the deal prices and time. The chart displays data for each transaction with a specific asset, where the price and time of the transaction are specified.
If you analyze a line (zone) chart, the most interesting information is about transactions or quotes with the traded asset for a certain period of time – from several minutes to several years. The analysis of information on very short periods of time can be useful for trade, in the conditions of domination of accurately expressed trend. But it is more useful to analyze both line and zone charts for long periods of time, especially if additional information is used for the analysis. This approach can help to understand better the market as a whole.
As part of analysis of the line chart for trading purposes the conclusions are based on the maximum price of the asset for a given period of time, minimum price for the same period, price of the first transaction at the beginning of the period, price of the last transaction and weighted average price by volume of transactions for the period. Analysis of the reviewed charts shows a movement only of one parameter in the period and is not suitable for the characteristics of the market as a whole. To forecast a movement of the traded asset on such chart is too superficial. The chart is more suitable for analyzing events that occurred in the past.
Zone chart in binary options trading
The zone chart may be applied to binary options trading. In particular, you can practice trading in trends and levels. To trade on the trend you need to determine the trend. To do this first select the display time of price changes. Then, mark the trend direction on the selected interval of the zone chart; you should take into account the corrective price movements. It is necessary to determine the most accurate time to enter the market.
You can also carry out the level trading through zone charts. In different periods, an asset price touches the same price values, in other words, it reaches the same level and then has correction. On the chart on the trading platform, the horizontal lines mark the price level, thus the price corridor is established. Going beyond this level is often a breakout and then the price rushes up. The traders use this opportunity. On the zone chart, traders can clearly see when the price reaches a high, open a bear deal or lows, and open a bull deal.
Zone chart in Forex trading
Forex trading starts from the line chart. The chart is a part of a graphical method of forecasting, it helps to identify patterns, specify support and resistance levels. Patterns are standard not only in Forex trading.
Among such figures, for example, are «Head and shoulders», «Double/Triple bottom», «Flag» and «Pennant». The figure of graphical analysis «Head and shoulders», and its inverted version can be called a classic in technical analysis. This pattern signals the beginning of a trend reversal.
«Head and shoulders» are formed by three waves of price fluctuations. The top represents the peak of «waves». The second peak (a head) is above the preceding and following peaks of the waves. In the typical scenario, the trend breaks through the support level after the third maximum, and the price is rushing down.
«Flag» is also a classic figure in Forex market. It occurs under the following conditions: after a strong price movement there is a pause, which develops for some time as a flat — sideways trend without strong fluctuations. This movement continues long enough in a downward or upward trend and its appearance on a chart resembles a flag. The figure is considered one of the most reliable and allows you to bet confidently on increase or decline of the prices.
«Double bottom» pattern is also one of the prominent figures on the chart. It is formed on a downtrend-and represents two minimum prices and there is a small price rise between them. After the second passed bottom, traders expect to see the price rise.
Zone chart in cryptocurrency trading
A line or zone chart is used rarely in trading on the cryptocurrency exchange. The volatility and unpredictability of cryptocurrencies make this type of chart not very suitable for trading. Although you can use it in scalping on very short timeframes, because this strategy actually works «at random», there is no need in the detailed analytics and in this case, it is an advantage of an uninformative line chart.
However, a zone chart has not enough information to determine the general trend, especially on the time interval of a large extent. The zone chart is also used to estimate supply and demand. On crypto exchanges, there is a zone chart to demonstrate the ratio of sales and purchases of cryptocurrency. This variant of the chart looks like waves descending from two sides, one of which shows the volume of sell orders and the other shows the volume of buy orders. Traders can use this chart to predict the price movements.
If the supply and demand lines are symmetrical, then a rapid trend change is not expected, if the demand wave is steeper than the supply wave, then demand is growing and there may be a price rise. If the demand wave looks steeper, we can expect the price fall.
Example of strategy application to zone chart
On a line, zone chart you can practice simple strategies that are usually recommended for beginners. For example, there is Martingale strategy. The main idea of the strategy is to double the bet after losing the previous bet. To trade binary options you need to register at one of the trading platforms, for example, Binomo (site).
To deposit money to your account, you can do it in different ways. Then go to the trading terminal. However, first you should try to trade on a demo account that is provided on the platform. The amount on the training account is indicated at the top in the center of the terminal.
At the bottom on the left of the terminal, there is a button with a drop-down menu where you can select a chart.
Then you need to select a timeframe. In this case, the timeframe should be short, so that there is time to increase the rate. The button with drop-down menu of the periods is located next to the chart type selection. Martingale strategy is a short-term strategy, so traders choose the binary options expiration time from 30 seconds to several minutes.
If you want to buy or sell, make sure that it is an expressed trend. Some traders recommend waiting for 10 minutes to get confirmation. For some time before the expiration of time for the sale or purchase, you need to make a bet. If the trader loses, he should double the amount of his next bet. Traders proceed from the fact that, according to the theory of probability, next bet can be more successful than the previous one.
The strategy works with greater efficiency, if the trader takes into account a number of points when using this strategy. For example, it is not recommended to panic at the slightest movement of the price in the direction that differs from trader`s expectations. It is necessary to increase the rate after the previous unsuccessful rate a little more than exactly twice. You should not implement a strategy based only on luck; knowledge of the market reduces the number of erroneous actions and significantly increases the probability of a successful outcome.