The Line Chart The Line chart is the most commonly applied chart in financial papers and non-trading related issues. The line chart is composed by connecting the closing prices to each other giving the trader only one source of information. However the open, high or low price can also be used to form a line chart. Chart 1 – EUR/USD daily line chart
Source: MetaTrader 4
Depending on which trading software the trader is using, the timeframes can be customised to the preferred view, whether being on a monthly, weekly, daily or intra-day time-frame. The advantage of the line chart is that it is easy to spot a trend as well as the ease to virtualise since there is only one kind of information on the chart, which is the closing price. The fact that only one kind of information is observed is however also the weakness of the chart and most traders prefer more detailed charts for analysing possible future trading setups.
Bar Chart The bar chart also referred to as the OHLC chart (for Open, High, Low and Close) has been traditionally used in the futures market. Every bar represents a specified time interval and looks like the following:
The interpretation of a bar chart is pretty straightforward. One bar represents a specified time interval. The horizontal bar to the left shows the open price and one to the right shows the closing price. The vertical bar displays the trading range during the period. The below figure represents the same instrument as demonstrated in Chart 1, but this time visualised through a bar chart: Chart 2 – EUR/USD daily bar chart
Source: MetaTrader 4
As you can see, we now have four types of information to work with, which makes it easier to gauge the price action during the period.
Candlestick Chart Bar charts and candlestick charts are very similar as they represent a visualisation of the open, high, low and closing price. Instead of showing the opening/close prices through horizontal lines on the vertical line, the area between the open and close is now filled and called “bodies”. The white body represents a bullish price move and a black body is representing a bearish move within the pre-specified time period. The lines from the body to the high and body to the low are called shadows. The origins of candlesticks have been tracked back to commodity-trading in Japan several hundred years ago. In the traditional study of candlesticks from Japan, the bullish bar is red, whereas the bearish remains black. When hearing the word “Chinese” studies, the bodies are black and white, referring to yin and yang.
Candlestick charts are the preferred for traders of all levels all around the globe today. Although very similar to the bar chart, most traders prefer the candlestick chart as it gives an easier visualisation of the price action, clearly showing the intensity of the buying and selling pressure. Naturally, the bigger the body of the candlestick, the higher the selling/buying pressure. In Chart 3, EUR/USD on a daily basis is shown.
Chart 3 – EUR/USD daily candlestick chart
Source: MetaTrader 4 Whether experienced or inexperienced in financial markets, it is recommended to incorporate the candlestick charts in your routines to analyse the future direction of any financial instrument.