There is no doubt that technical analysts hardly make trading decisions without technical charts representing historical prices, volume and time frames. It is therefore essential for you to learn different charts used in technical analysis.
Like most trading platforms, eToro provides traders with five types of charts, including:
- Candlestick chart
- Hollow candle chart
- Bar chart
- Line chart
- Map of the mountains
Although these different charts are all created using the same price data, they display the data in different ways.
This article will guide you through the different types of charts available on eToro and their meaning.
1. Candlestick chart
A candlestick chart represents the price movements of instruments over a given period of time. This type of chart is very popular among traders because they are easy to read and understand.
A candlestick offers a wide range of information in a simple way, including high, low, open and closing prices in a given period of time. The trader can set this time frame according to his needs.
For example, if the time limit is set one day, a new candlestick is created every day in the chart.
A candlestick is composed of a body and wicks (fine lines that extend above and below the body).
- The “body” of each candlestick shows the opening and closing prices
- Candle wicks show the high and low prices for each period.
The color of the candle indicates whether the value of the asset has increased or decreased over the period. More specifically, green candles reflect that the price closed higher than where it opened (often called a bullish candle), and each candle that is red means that the price closed lower than where it opened (often called a bearish candle).
A typical candlestick looks like this:
What makes the candlestick chart an improvement over others is that it provides the trader with more information while remaining easy to view at a glance. So, the candlestick chart is by far the most popular chart type used in technical analysis.
2. Blank candlestick chart
A hollow candle chart is similar to the Japanese candle chart, except for the color of the candle.
Hollow candlesticks use color and fill attributes to show price behavior. When a candle is solid, it means that the closing price is lower than the opening price of the same period. When a candle is empty, it means that the closing price is higher than the opening price of the same period.
The fine lines on both ends called wicks or shadows represent ups and downs.
3. Bar chart
Like the charts above, a bar chart reflects the price movement of a financial instrument. Each bar represents a specific time interval.
- The vertical line is created by the high and low prices for the bar.
- The hyphen to the left of the bar was the opening price, and the hyphen on the right indicates the closing price.
Traders may find bar charts difficult to follow at first glance, but in essence, bar charts are quite simple to read and great for analysis.
By removing color from the chart, traders can view market sentiment (bullish/bearish) with a simple perspective, which especially benefits trend traders.
4. Line chart
Line charts are the simplest type of chart. Charts typically show closing prices and nothing else. Each closing price is tied to the previous closing price to create a continuous and easy-to-follow line.
Although the line chart provides less information than candlestick or bar charts, it is better for at-a-glance viewing for a simplistic view of the market. Price charts also help to easily visualize a developing trend. This is done simply by looking at the direction the line is taking.
In addition, the line chart can help manage the emotions of trading by eliminating “unstable” movements in different colors as seen in candlestick charts and selecting a neutral color such as the blue chart depicted above.
5. Map of the mountains
A mountain chart is a financial chart with peaks and dips, which makes it look like the side of a mountain. Mountain charts are essentially the same as line charts, but with the space below the line full of colors.
Like line charts, the chart is quite simple to digest market information quickly and appealingly as there are no complicated details to consider.
In conclusion, a technical chart is considered a valuable tool to help traders make informed decisions while making a financial commitment in the markets.
Selecting a trading chart is largely a matter of personal preference. Ease of reading and comprehension should be given priority consideration. If you are interested in experimenting with the different chart types and understanding their capabilities, use the demo account provided by eToro. And be sure to choose the chart that suits your strategy and style. Happy trading!