on the Forex market
Novotrend is designed for those just starting out.
acquaintance with the foreign exchange market
In this lesson, we will look at the types of charts, their strengths and weaknesses. You will also learn how charts can be used in trading.
What are the types of charts;
How to “read” graphs correctly;
What type of chart is the most popular among traders.
Technical analysis focuses primarily on the use of charts. To start analyzing charts, it is important to understand: What types of charts can be used to predict market movements? How are different charts created?
There are 3 types of charts:
- Line charts;
Line charts are the simplest form of charting. They are based on lines that illustrate price changes. The line connects the closing prices.
Such a chart is the easiest to understand and predict the price, as it allows you to see the overall picture of the market. This type of charts is popular among beginners, as it allows you to understand the basic figures of technical analysis, has a low information content, without overloading with unnecessary details.
It should be noted that the use of line charts is most suitable for beginners in the first stages of learning technical analysis.
Unlike line charts, which are plotted based on closing prices only, bars show open and close prices, as well as highs and lows for the selected timeframe period.
The bar shows the trading range for a certain period of time. The lower part of the bar displays the minimum price for the selected time period, and the upper part displays the maximum. The opening price is indicated by a dash to the left, and the closing price is indicated by a dash to the right.
Depending on the difference between the opening and closing prices, the bars can show 3 market situations:
Rising bar (bullish) - if the opening price of the bar (dash to the left) is below the closing price (dashes to the right). For example, if Sberbank shares grew by 10 rubles in an hour: from 180 to 190, then we will see a growing bar.
Falling bar (bearish) - the opposite situation arises here: the opening price is higher than the closing price. We will see a falling bar if the asset falls in price over the selected period.
An equilibrium bar is a rare situation for the market, we can see such a bar if the opening and closing prices are identical. This bar indicates no change in price.
A bar chart provides significantly more information than a line chart. Using this type of chart, you can predict price changes based on certain specific bar patterns.
This type of analysis is more time consuming and is suitable for experienced traders. This type of chart allows you to find more accurate market entries, giving you the opportunity to make more profits.
Like histograms, candlesticks represent the same information, but they are visually more accessible. Like bars, candlesticks range from high to low with open and close levels.
The highest price is indicated by the upper shadow, and the lowest by the lower shadow. The longer the body, the greater the price change. Conversely, short candles indicate small price movement, representing consolidation, i.e. the period when the market remains calm.
The body (middle) shows whether it was a bullish (upward) or bearish (falling) candle. Usually, if the body is black, it means that the currency has dropped in value. On the other hand, a white candlestick illustrates an increase: the price closed higher than it opened. Please note that these colors differ for different platforms, you can customize them in MT5 in the settings section - color scheme.
Many traders find candlestick charts to be more attractive and easier to understand than traditional histograms. Each candlestick makes it easy to see if there has been a rise or fall. The trader can immediately compare the relationship between open and close, as well as high and low.
In fact, Japanese Candlesticks and Bar Charts provide identical data, but candles are easier to interpret as rising and falling candles differ in color.
What to choose for yourself?
As you can see, there are 3 main types of graphs. The line chart is more suitable for beginners and allows you to master the basic methods of technical analysis. Bar charts and candlestick charts are recommended for more advanced traders, they are more difficult to use, but provide significantly more information about the market situation.