What Are the Types of Trading Charts? Why Are They Important?
What are the types of trading charts? Once you get your trading account set, you will need tools to help you uncover the views and insights of the market to decide about the trade to make. One of the most important tools is the colorful and engaging drawings that represent the movements in the market. Those are known as “trading charts” in the investment world. Traders and analysts restore to different types of trading charts because they make it easier for them to read the market and thus make informed decisions based on the data given to them.
There is not only one type of trading chart but several ones. Each type of trading chart has its own unique features, benefits, characteristics, and usage. The most popular of which are candle charts, bar charts, and line charts.
This type of trading chart is made up of rectangle-shaped bars with lines extending out from the top and bottom of each as they look like candles with a “wick”, hence is the name. The candle-shaped trading charts are used to track changes in the financial markets. These trading charts are easy to read as the top line represents the highest price of an instrument during a given period, while the bottom one represents the lowest. The body itself represents the opening and closing prices.
This type of trading chart is preferred by many traders and investors. The reason behind that is that they give them very good insight into the market at just one glance. By just looking at the candle charts, traders can:
a. Determine if the market is going bullish (up) or bearish (down):
It is easy to read the candle trading chart to determine the state of the market. In this type, the body will tell you about the changes in the price of a particular instrument. The shorter it is, the less the change. The longer it is, the bigger the change.
b. This type of trading chart enables traders to see the direction of the market more easily:
The ‘wick’ or ‘shadow’ in the candle-shaped trading charts represents the highest and lowest level of the price within that specific time frame. By referring to it, traders can determine if an uptrend is part of bullish momentum or simply a bearish spike.
c. With this type of chart, they can quickly spot industry trends.
Unlike other types of charts, candlestick charts show distinct positive and bearish turnaround patterns.
With bars trading charts, data is depicted in rectangular bars. Since each bar’s length is proportional to the worth of the data it reflects, comparing data across categories is simple.
This type of chart is used to show the price changes of a financial asset over time. Each bar in the trading chart represents a different time frame, such as a day, a month, or a week. Bar trading charts show the opening, closing, high, and low prices for the period represented.
The top of the bar of these trading charts represents the highest price reached during the period represented. The bottom of the bar represents the lowest price. On the other hand, the small horizontal line on the left side of this type of trading chart represents the opening price, while the small horizontal line on the right side represents the closing price.
a. Bar trading charts are easy to read and analyze.
As each bar represents a specific period of time, it is easy to read the price movement with bar charts.
b. They help traders to identify key price points.
Because these trading charts display the opening, closing, and high and low prices for each period, they allow traders to quickly identify key price points and other important information, such as support and resistance levels.
c. These trading charts are customizable.
With bar charts, traders can monitor and track various time spans and periods, which enables them to concentrate on market segments and spot trading chances.
Line trading charts are used to show the changes during a period of time. The period is represented by a horizontal axis for time and a vertical one for data value. Between these two axes, there are plots that represent the closing price of the assets and a line that connects these plots.
a. Identify trends and patterns in data over a period of time.
It is easy to identify trends and patterns in data over time with line trading charts. In fact, they allow the user to see how the data changes over time and identify any significant changes in the trend.
b. These trading charts are easy to interpret.
Even for beginner traders can interpret line trading charts as they only show the closing prices over a period of time. This makes them a popular choice among new traders who are just starting out in the trading world.
c. They are useful for long-term analysis.
Line charts are especially useful for analysing long-term trends, as they can help traders identify major support and resistance levels over extended periods.
Trading charts are a useful tool for displaying and interpreting data. Three popular chart types that beginners should be familiar with are candle charts, bar charts, and line charts. Each of these trading chart types has its unique advantages that can help make traders’ journey more effective. They can assist them analyzing data and the movements of the market, and thus make more informed decisions about their trades.
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