Introduction to chart types
Charts are an important tool in trading it provides the valuable information about the
price movements of financial instruments.
Traders use charts to identify trends, patterns and potential opportunities for profitable trades.
However, so many different types of charts available, it can be difficult to decide which one to use.
In this chart types article, we will introduce about the most common chart types used in trading.
Japanese candlestick charts
Japanese candlestick charts are the one which are most widely used chart types.
Each candlestick displays four pieces of information for a specific time period such as day, week, or hour and opening price, closing price, high price, and low price.
The body of each candlestick represents the difference between the opening and closing prices.
while the wicks or the shadows are on either side represent the range between the high and low prices.
If the closing price is higher than the opening price then the body of the candlestick is usually displayed in white or green.
When the closing price is lower than the opening price, the body is usually displayed in black or red.
Japanese candlestick charts are particularly useful for identifying the trends, as well as identifying the key support and resistance levels, reversals and the other price patterns.
Range bar charts
Range bar charts are constructed by using price ranges instead of time intervals and each bar represents a fixed price range like $1 or $2.
The new bar is created when the price moves outside the range of the previous bar.
Range bar charts allows the traders to see the trends and the price action more clearly including how long it takes for a price move to occur.
They are particularly useful for identifying the support, resistance levels and filtering out noise and volatility.
Hollow candlestick charts
Hollow candlestick charts are similar to Japanese candlestick chartsit provides the information about the opening price, closing price, high price, and low price of each time interval.
Hollow candles differ in how the color of each candle is determined and whether the candle is filled or hollow.
The candle is hollow if the current candle close above the open (bullish) and filled if the current candle close below the open (bearish) the candle is green or white.
If the current candle close is higher than the previous candle close, and red or black if the current candle close is lower than the previous candle close.
Hollow candlestick charts are used to identify the trends, patterns and potential trading opportunities based on assets price movements over time.
Heikin – Ashi
Heikin-Ashi charts are a type of candlestick charts that are similar to traditional candlestick charts, but they are used a modified formula using the previous candle prices.
To calculate the opening, closing, high, and low prices for the current candle. “Heikin-Ashi” translated by English as a “average.
These charts are very smoother and less noisy than traditional candlestick charts.
This makes it easier for traders to identify trends and momentum and filter out false signals and noise.
Raindrop charts are a new type of charts that they combine the price action, volume and the sentiment into a simple, powerful chart visualization.
Each “raindrop” shows the high price and low price of the time interval and the VWAP for the first and second parts of the time interval.
Additionally, each half of the raindrop shape represents a chart of volume at the price for each half of the time period, rotated 90 degrees and joined together to form a raindrop.
Raindrop charts that give traders an extra edge in the market by incorporating volume and eliminating somewhat arbitrary data points such as open and close prices.
They are especially useful for the spotting breakouts, fake outs, and the points of market uncertainty.
Renko charts are very similar to range bars except that they use fixed price intervals instead of the time periods.
However, instead of drawing bars the Renko charts are use the bricks to represent the price movements.
The new brick is added only when the price moves some distance in the same direction from the previous brick.
Renko charts allows the traders to filter out the noise and volatility also focuses on the significant price movements and the trends.
Point and figure charts
Point – and-figure charts are a special type of chart that does not use time intervals.
Then they focus on the price movements and display them asa X’s and O’s.
X is added when the price rises by a certain amount and O is added when the price falls by the same amount.
This creates a series of vertical lines that can be used to identify the trends and support or resistance levels.
Point – and-figure charts are particularly used for the long-term analysis and for identifying the key price levels and the patterns.
In conclusion, there are many types of charts that the traders and the investors use to analyze the financial markets.
Each chart type has its own strengths and the weaknesses, and the different traders may prefer different chart types.
Ultimately, which chart type to use depends on a number of factors, including the trader’s experience, risk tolerance and trading goals.
It is very important to experiment with the different chart types and find the one that works best for each individual that the trader’s needs.