Beginner Level

Learn basic topics about forex, platforms and trading.
If you are new to the markets, start here.

Lesson 6: Types of Charts

To start analyzing the graphs, it is
crucial to understand which sort of charts can be used to forecast market
movements and how various charts are built. The three most popular types of
charts are:

  • Line
    Charts
  • Bar
    Charts (OHLC)
  • Candlestick
    Charts

Line
Charts

Line charts are probably the simplest form
of charts used by stock traders in the past when it comes to financial markets.
These are based on the lines drawn from one closing price to the next closing
price. Such a graph is a simple way to show the general price fluctuations of a
market over a specific period of time. Line charts often help to identify
technical trends because of their simplicity and are often favored by
beginners. If you’re looking to get started on the financial markets, learning
line charts is a good place to start.

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Bar Charts

In comparison to line charts, which provide
only instrument closing prices, bar charts provide opening and closing prices,
as well as highs and lows for that time. The bottom of the bar shows the lowest
traded price for the period of time chosen, while the top shows the highest
price paid. The bar as a whole reflects the scope of transactions from a
specific period of time. Opening and closing prices are represented by
horizontal marks on the left and on the right of the vertical line,
respectively.

There are two forms of bars that you can
see on the map. A common method of classifying vertical bars is to show the relationship
between opening and closing prices within a single time interval as either bull
(rising) or bear (falling) bars as shown below.

Bar charts present the data on a
stand-alone basis, without comparing prices to neighboring prices. That set of
price fields is a single island which demonstrates how the value behaved over a
specific period of time. Recognizing trading patterns may be a bit more complex
than line charts, but bar charts provide you with all the necessary time
interval data.

Candlesticks
Charts

Similar to bar charts, candlestick charts
provide the same information, but are probably visually more accessible.
Similar to the windows, the candlesticks apply to the high-to-low range with
the rate of opening and closing. The highest price is indicated by the upper
shadow, while the lower shadow is shown by the lower shadow. The longer the
body is, the more severe the pressure to buy and sell. This means that the
longer the body is, the greater the price change there has been. Conversely,
short candlesticks display little price movement and reflect stabilization (a
time when the market remains calm).

The only difference is the body’s
construction. The opening and closing levels of the bar charts were shown by
horizontal marks to the left and to the right. For candlesticks, it is the body
(the middle one) that indicates whether it was a bullish (rising) or a bearish
(falling) candle. Usually, if the body is black, this means that the currency
or the CFD closed lower than it opened. On the other side, a white candle
reflects a bullish move (a value closed lower than that opened). It is worth
remembering, however, that these colors vary across different platforms, and
you can change them in our MT4 trading platform.

Compared to traditional bar charts, most
traders found candlestick charts more visually enticing and easier to read.
Through candlestick provides an easy-to-understand image of price action.
Immediately a trader can compare the relationship between the open and the
close and the high and the low. The relationship between the open and the close
is considered to be vital information and forms the core of candlesticks.

Conclusion

As you can see, there are three types of
graphs used by traders. Each has its own advantages and disadvantages. You
should use the one that best suits you to become a successful trader. Beginners
can start with line charts and basic trading patterns, while more experienced
traders can use candlesticks to build their trading strategies.