Important types of chartsHey everyone! In this post, we are going to talk about different types of charts that are used in technical analysis.
Please remember this is an educational post to help all of our members better understand concepts used in trading or investing. This in no way promotes a particular style of trading!
Charts are used to illustrate change in prices over different time frames. It’s a graphical method of showing the historical price information. Charts are two-dimensional and have an x-axis (horizontal) and a y-axis (vertical). The x-axis generally represents time whereas the y-axis indicates the price.
👉 Line chart
• “Line charts” are formed by connecting the closing prices of a specific stock over a given period of time.
• It is particularly useful for providing a clear visualisation of the underlying trend.
• It only considers the “closing value” of the stock and ignores the open, high, and low values.
• Since it only uses the closing prices, hence it less noisy as compared to candlestick or bar charts.
👉 Bar chart
• A bar shows the high price for the period at the top and the lowest price at the bottom of the bar.
• Each bar displays the open, high, low, and close prices (OHLC).
• Small lines on either side of the vertical bar serve to mark the opening and closing prices.
• The opening price is marked by a small tick to the left of the bar; the closing price is shown by a similar tick to the right of the bar.
👉 Candlestick chart
• A candlestick chart provide visual insight to current market psychology.
• It displays the open, high, low, and closing prices (OHLC).
• The rectangular section of the candles is called the real body, which is the range between the session’s open and close.
• Bearish candle- When the close of the session is lower than the open.
• Bullish candle- When the close of the session is higher than the open.
• The thin lines on each side of the candle are called the wicks/shadows and they represent the session’s price extremes.
👉 Heikin Ashi chart
• Heikin Ashi uses a modified formula of close-open-high-low (COHL).
• Normal candlesticks keep changing colour depending on the OHLC even if the price is moving heavily in one direction. But the Heikin Ashi candles stay predominantly mono-coloured during trends.
• Candles with no lower "shadows" indicate a strong uptrend.
• Candles with no upper "shadows" indicate a strong downtrend.
• Candles with a small body surrounded by upper and lower shadows indicate a trend change.
👉 Renko chart
• A new brick is created when the price moves a specified price amount. The brick only forms on the chart once the price has moved the set amount.
• A brick can be of any size (called the box size). Box size can be set manually or it can be calculated using the Average True Range (ATR).
• There is a time axis on Renko charts, however, the time scale is flexible. This means that the bricks are not formed at an equal pace.
• Renko charts typically only use closing prices and mitigate the noise to a higher extent, making trend identification easier.
👉 Kagi chart
• When the price of the asset rises above the previous high price, a thick line is formed, signalling an increase in the demand.
• When the price drops below the previous low, a thin line is formed to indicate an increased supply.
• When there is a price reversal of a certain threshold amount, the chart starts to reverse the direction.
• Swing highs are called shoulders and the swing lows are called waists.
• Rising shoulders = Bullish. Falling waists = Bearish
👉 Point and Figure chart
• A P&F chart is used to visualize price movements and trends without any dependence on time.
• It makes use of columns made up of stacked Xs or Os, where each one stands for a specific amount of price change.
• In general, X illustrates rising price, while O represents a falling price (Some people use the reverse too).
• Point and Figures also emphasize on the closing prices only.
Thanks for reading! Hope this was helpful!
See you all next week. 🙂
– Team TradingView
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