Line, Bar, and Candlestick in Technical Analysis

Technical analysts use chart analysis as one of the major methods for forecasting security prices. Chart analysis allows them to spot patterns and trends in security prices quickly and easily. Technical analysts are commonly referred to as chartists because charts are so prevalent. In the past, charts were drawn by hand, but most of them today are drawn by computers. There are several types of charts that are used for technical analysis. Line charts, bar charts, point and figure charts and candlestick charts are the most common types.

Prices of securities are displayed graphically over time as charts. In these charts, volume is often included as well. Furthermore, charts provide fundamentalists with an easy way to study how the market has reacted to specific events through the concise presentation of price and volume information over time. Trading charts are equally valuable for analysts in spotting trends and patterns. Charts can also be used to determine market volatility. In addition to providing entry and exit points, charts can also help traders place stop losses at the right prices to reduce risk.

Line charts, bar charts, candlestick charts, and point-and-figure charts are the most common chart types used by technical analysts. You also have the option of displaying charts on a logarithmic or arithmetic scale. The type of chart and scale used by a technical analyst will depend on what information he or she considers most important, and which chart and scale will clearly show that information.

Line Charts

The simplest form of chart is the line chart, which displays price changes over time. In most charts, a single point is depicted as the closing price. In other words, it is a line formed by these points. The last price for a given interval, such as an hour, can also be plotted. If the last price for a given interval is chosen, intraday price changes can also be plotted. Line graphs make it simple to compare prices for various securities and indexes together, since they are simple.

Although the line chart is easy to read, it does not provide much information about price movements at the time. A trader can manually compare the closing price from one period to the next, but it allows him to see trends and patterns. Moreover, the line chart offers the best illustration of patterns, which are as simple as the slope of the line.

Bar Charts

As part of technical analysis, bar charts are one of the most commonly used tools. These charts show the open, close, high, and low prices of stocks or other financial instruments in the form of bars that are plotted over time as a series of prices. Traders can more easily identify patterns using bar charts. Basically, each bar is simply four prices over a specific period, connected by a bar in a specific manner – a price bar.

Price bars display the opening price of the financial instrument that is the price at the beginning of a period, on the left side, and the closing price, which is the final price during the period, on the right side. Tick marks also refer to these horizontal lines. The top of the bar shows the high price, and the bottom shows the low price.

The bar graph shows the range of price for each period and indicates the direction of a market (depending on whether it closes up-green or down-red).

Candlestick Charts

Besides the candlestick chart, another chart used in technical analysis is the price line chart, so named because the part of the chart representing prices looks like a candlestick, with a thick body and usually a line extending above and below it, known as the shadows.

On the upper shadow, the top represents the high price while on the lower shadow, the bottom represents the low price. Body and shadow both contribute to the formation of patterns. Candlestick patterns are most effective when used over short time frames, and most often indicate reversals of trends at the top or bottom of an uptrend or downtrend.

In spite of the similarity between the bar chart and the candlestick chart, certain patterns can be more easily spotted on the candlestick chart. An opening and closing price is displayed on the candlestick chart. Real bodies are represented by the top and bottom of the price range. A white top indicates the close; if a black or other dark color represents the opening price, the top is the closing price. The color of the real body determines whether the top represents the opening or closing price. There is an opening and closing price difference shown by the length of the real body. Black real bodies indicate bearishness, while white real bodies indicate bullishness, and these patterns can easily be seen in a candlestick chart.

Final words

In order to learn and practice reading trading charts, you should experiment with them in a demo account and discover how they differ and adjust the settings to see how they affect what you see.

Surely you will prefer one chart over another as you study different trading strategies. But these preferences do not necessarily translate into being better either, since they are a matter of personal choice.

In this competitive industry, reading market data is crucial. If you lack the skills to interpret the data accurately, then you may run into difficulties even if you have the necessary knowledge. In order to become a better trader, you need to develop high-performance chart setups.