Explaining Charts

The most essential tool in understanding the current market trends is a chart. Active traders make use of their favorite chart types in analyzing the market everyday.

A chart reflects the psychology of the market and represents price movements and market players’ interactions virtually. Moreover, it shows how the market fares a certain asset based on all the available figures and data. Given this nature, a chart plays a highly important role in the trading industry.

Three Types of Charts

Bar Charts

Bar charts offer four key figures for a specific time frame: 1) the opening price; 2) the closing price; 3) the high price; and 4) the low price.

These charts are applicable to all time frames. A single bar can reflect prize movement over a minute or over a month. Different time frames are used by different traders in numerous ways. However, it is a rule of thumb that the longer the time frames are, the more accurate and the more reliable the results are.

Candlestick Charts

Just like the bar charts, candlestick charts include the market’s opening, closing, high, and low prices of a specific time frame. The technical analysis was invented by the Japanese in the 1700s. The difference is that the candlestick’s body represents the opening and closing price range.

When the color of the body part is red or black, it is an indication that the closing price is higher than the opening price. When the color is blue or white, it means that the closing price is higher than the opening price.

The candlestick charts put more importance on the connection between the opening and the closing price. Furthermore, located above and below the candlestick’s body are the ‘wicks’. The top wick represents the highest price while the bottom wick is the lowest price within that time frame.

Candlestick charts are the most common type of charts since they look more appealing.

Line Charts

Line charts, unlike bar and candlestick charts, do not show that much information. They only show the closing price for certain periods. Line charts display the overall direction of long-term market movements.

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