Different Types of Chart in Technical Analysis
This is our second post of the free trading course. In this post, we will cover the different types of charts and basic market trend movements. You can read our first post of free trading course here. Let’s Learn 🙂
What is a Chart?
A chart is a historical representation of data in which data is represented in various ways. Data representation can vary with different time frames. There are many ways of data representation, you can represent the same data using a line or a chart or pie chart anyone that you like and understands better.
What is Timeframe In trading?
Data is represented in multiple periods of time. The majority of platform give time frame starts from 1sec to 1 month for premium members, for a free user, it’s from 1 min to 1 month.
There are different types of traders in every market like short term, midterm, and long term traders. The short term traders mostly use 5 min to 1-hour timeframe charts for trading. The midterm traders use 4-hour to 1-day timeframe charts for trading. The long term traders use mostly weekly and monthly timeframe charts for trading.
Now let us understand some important terms in trading:
What did the term define bullish and bearish in the market?
The bullish word itself gives a meaning aggressive, and although in the financial market this term used refers to market sentiment when a security price is in an uptrend (makes higher and high).
Bearish when a security price is in a downtrend (makes lower low).
What is higher high (HH), higher low (HL), lower high (LH) and lower low (LL)?
We all know when the market is trending it neither moves straight up or down unless there is a piece of fundamental news released. When the security is bullish it moves to make Higher High (HH) and Higher Low (HL). In a nutshell, when prices move upwards and it makes a correction slightly lower and makes a new higher high (HH).
Same as it is, when the security is bearish it moves Lower low (LL) and Lower High (LH). We can say that price moves downwards and make a slightly high move and follows the major trend of lower low (LL).
Now let’s talk about some popular various types of charts used in trading.
Types of charts
Candlestick Chart
This chart is the most popular and widely used for trading. Each and every platform have this candlestick chart. This candlestick was developed by a Japanese rice merchant in the late 1700s to track the price action of rice futures. Often this candlestick is also called “Japanese Candlestick”. This candlestick consist of four prices. Prices indicate open, high, low, and close (OHLC).
Heikin Ashi ( HA)
Heikin Ashi candlesticks if a side branch of Japanese candlestick. It uses the data of Japanese candlestick (i.e., OHLC) and used to plot Heikin Ashi candles.
Heikin Ashi candlestick calculation:
Open = (open of previous bar + close of previous bar)/2.
Close = (open + high + low + close)/4.
High = the maximum value from the high, open, or close of the current period.
Low = the minimum value from the low, open, or close of the current period
Line Chart:
à Line chart is the easiest and the simplest trading chart in trading. This chart is plotted by the close price of the security under a given timeframe. This chart is quite easy to trade, but have some limitation because it not provide proper data for traders who have a strategy based upon price and or something like that.
Bar Chart:
A bar chart consists of OHLC price and a stick which has a small stick on the left and right on that stick which indicates open and close price respectively.
Note: There are more different trading charts like Renko, Kagi, Line Break, Point & Figure, etc. but not used quite often. So, it’s better to use a popular and better one available.
