There are many types of charts used by investors and traders for various different objectives. The three most commonly used charts be line charts, bar charts and candlestick charts.
Line Charts
The most basic type of chart is the line chart. It is the most fundamental type of price chart, with lines joining the closing price points for each time period over a set frame of time. This particular type of chart lacks any detailed information, and does not present the highest and lowest price points of the chosen time period, and only presents the closing price. This chart is often accompanied by a histogram with bars of varying heights representing the trade volume for each time period.
While this chart may seem to lack insight, it is still most commonly used to give a birds eye view of the market over a particular frame of time, This can be useful to identify market trends which can be harder to see in more complex charts. This chart is often a starting point for beginners, as it can be easier to recognize and learn patterns on a simple line chart.
Bar Charts
Unlike line charts, have a vertical bar or line representing each time period, with the lowest point of each bar corresponding to the lowest price of the period, and the highest point corresponding to the highest price of the period. On the left of each vertical line, a small horizontal dash represents the opening price, while one on the right represents the closing price of the time period. A bullish bar would have the left vertical higher than the right vertical, while a bearish bar would be the opposite. Bar Charts are very focused on presenting the high and low points of each trading period, which can be useful for identifying trading ranges for the underlying instruments. This can be useful when attempting to identify trends in the market, as attention is not drawn to the open and close price of each bar.
Candlestick Charts
Candlestick charts first originated 18th Century Japan, used to track prices by rice traders. A bar represents each time period with lines extending above and below, which resemble candlewicks. The end of the “wicks”, correspond to the highest and lowest prices within the time period, where the main body of the candle is often represented in two colors, with one representing a bullish candle where the bottom of the bar is the opening price and the top of the bar is the closing price, and the other representing a bearish candle where the top of the bar is the opening price and the bottom of the bar is the closing price. It is possible for a time period to open or close at the highest or lowest points, where one would observe the lack of any line or “wick” extensions.
Candlestick charts are the most popular charts used in trading, as it is a hybrid of the line chart and bar chart, with all the relevant information about the magnitude of price movement, while also making it easy to see the market trend through a birds eye view on price movements within a time frame. Candlesticks can be visually easier to read and interpret, and thus has seen the highest use amongst traders in recent years.
As you can see, different charts are used for different purposes, with their own strengths and weaknesses. If you’re just starting out, a simple line chart may be the best place to start, whereas if you’re a seasoned speculator, a candlestick chart might be the best tool to perform technical analyses and identify market trends. When trading in the market, be sure to consider your objective, which will help you decide which charts suit you best.
