The chart is a significant factor in determining price movements for U.S. equity investors following the technical analysis school. Different types of charts have their own characteristics and are used for specific strategies. Therefore, choosing the exemplary chart will help you maximize your trading strategy. In this lesson, we will give you the four most popular chart types of stock investors.
The four chart types most commonly used in technical analysis are:
- Candlestick chart
- Bar chart (bar chart)
- Line Chart (Line Chart)
- Area Chart (Mountain Chart)
Candlestick chart
The candlestick chart is a financial chart that describes the price movements of financial products.
The candlestick chart is the most used of the chart types because of its superiority over other models. Using candlestick charts helps to represent price levels more intuitively.
In the candlestick chart, each candle will represent four different pieces of information, including the opening/closing price and the high/low prices.
Each candle represents the price in a period corresponding to the time interval of the chart.
For example, the chart is in the 1G frame, and each candle represents the price of an hour.
A candlestick consists of 2 parts that represent the price movements at any given time:
- Candle body: shows the interval between the opening and closing prices
- Candle shadow: shows the highest price (highest point of candle shadow) and low price (lowest point of candle shade)
The red candle represents the bearishness of that session. On the contrary, a green candle indicates a price increase.
Bar chart
A bar chart is a chart that reflects the price movement of a financial instrument, where the top of the vertical line indicates the highest price during the trading session and the bottom of the vertical line indicates the lowest price in the period session. The small horizontal bar on the left represents the opening price and the small flat bar on the right represents the closing price.
A single bar represents a trading session, be it a day, a week, an hour, etc. When you hear about “bar histograms”, you need to know the time interval. will know how long 1 bar represents
A bar chart is also known as an “OHLC” chart because it shows the price of a particular Product Open, High – High, Low – Low and Close – Close.
Line chart
A line chart links the closing prices of the previous time period with the closing prices of the next time period. When these points are connected, we get an overview of the price movement of a currency pair over time.
Line charts are created by combining a series of historical price data along with an interstitial line. Since this chart only tracks the closing price of a financial instrument in a given time frame, the advantage of this type of chart is its ease of use.
In fact, in the trading market today, due to the development of science and technology, the movements of the financial market are increasingly complicated, so this type of chart is less used than before.
Map of the mountains
A mountain chart is a financial chart that ties together the closing prices of trading sessions, making it look like the crest of a mountain.
A mountain chart is essentially the same as a line chart, but the space below the line is colorful. People often refer to them as area charts.
A mountain chart has several primary uses: it depicts the growth of an investment over time – this is a popular way to show past performance. In addition, this chart is also used as a trading tool to analyze price behavior. However, traders need to be careful as this type of chart can create a more significant optical illusion of growth than it is.
Conclusion
Above are the five most basic chart types and how to read the parameters of each chart type. Therefore, looking at a particular stock chart, you will understand how it represents the price on the chart and how it moves. You can quickly get a better view of the market and make more accurate trading decisions. With this feature, we can say that the chart is the guide for the technical analysis of stock traders.