In technical analysis, charts are used to analyze and interpret price movements of financial assets. There are several types of charts used in technical analysis, including:
Line chart: A line chart is a basic chart that shows the closing prices of an asset over time. It connects the closing prices with a line, making it easy to see the trend.
Bar chart: A bar chart displays the open, high, low, and closing prices of an asset for a given period. Each bar represents a specific period, such as a day or week.
Candlestick chart: A candlestick chart is similar to a bar chart, but it provides more detailed information about price movements. It uses candlestick shapes to show the opening, closing, high, and low prices of an asset for a given period.
Point and Figure chart: A point and figure chart is a charting technique used in technical analysis that doesn't use time as a factor. Instead, it plots price movements against each other in a grid-like pattern, with Xs representing price increases and Os representing price decreases.
Renko chart: A Renko chart is another charting technique that doesn't use time as a factor. It plots price movements using bricks of a fixed size, with each brick representing a specific price movement.
Kagi chart: A Kagi chart is a charting technique that uses vertical lines to represent price movements. The thickness and direction of the lines are determined by changes in the price trend.
Heikin Ashi chart: A Heikin Ashi chart is a type of candlestick chart that uses modified candlesticks to smooth out price movements and make it easier to identify trends.
These are just some of the types of charts used in technical analysis. Traders and analysts may use different chart types based on their trading strategies and preferences.
Line chart - A line chart is a basic type of chart used in technical analysis that displays the closing prices of an asset over a specific period of time. It is created by plotting a series of points on a chart and connecting them with a line. Each point represents the closing price of the asset at a specific time.
Line charts are often used to identify trends in an asset's price movements over time. By connecting the closing prices with a line, it becomes easier to see if the price of the asset is increasing or decreasing over time, and how volatile those movements are.
Line charts are also useful for identifying support and resistance levels, which are areas where the price of the asset has historically tended to rise or fall. Traders and analysts may use line charts in combination with other technical analysis tools, such as moving averages or trendlines, to make more informed trading decisions.
Bar charts - In technical analysis, a bar chart is a type of price chart that displays the open, high, low, and closing prices of a financial instrument over a specific time period. Each bar on the chart represents a single period, such as a day, week, or month.
The high and low points of each bar indicate the highest and lowest prices reached during the period, while the opening and closing prices are represented by horizontal lines extending from the left and right sides of the bar, respectively. If the closing price is higher than the opening price, the bar is usually colored green or white, indicating a bullish trend. Conversely, if the closing price is lower than the opening price, the bar is colored red or black, indicating a bearish trend.
Bar charts are commonly used by traders and analysts to identify trends and patterns in price movements, as well as to assess the strength of a trend and the level of trading activity in a particular instrument. By examining the height and shape of the bars, traders can also gain insights into market volatility and potential support and resistance levels.
In addition to bar charts, technical analysts also use other types of price charts, such as line charts, candlestick charts, and point and figure charts, to analyze market trends and make trading decisions.
Candlestick charts - In technical analysis, a candlestick chart is a type of price chart that displays the open, high, low, and closing prices of a financial instrument over a specific time period. Each individual price bar is represented by a "candlestick" which consists of a rectangular body and two wicks, one on each end of the body.
The body of the candlestick represents the opening and closing prices of the period, with a green or white body indicating a bullish trend (closing price higher than opening price) and a red or black body indicating a bearish trend (closing price lower than opening price). The length of the body represents the difference between the opening and closing prices, with a longer body indicating a more significant price change.
The wicks or shadows of the candlestick represent the high and low prices of the period, with the upper wick indicating the high and the lower wick indicating the low. The length of the wicks represents the range of prices that were traded during the period and can provide insights into the level of volatility in the market.
Candlestick charts are a popular tool used by traders and analysts to identify trends and patterns in price movements, as well as to assess the strength of a trend and the level of trading activity in a particular instrument. By examining the shape and color of the candlesticks, traders can gain insights into market sentiment and potential support and resistance levels.
Candlestick charting techniques are also used to identify chart patterns such as the Hammer, Doji, Engulfing pattern, and many others. Each candlestick pattern has a unique name and can provide traders with important information about the future direction of the market. Candlestick charts are widely used in technical analysis and are often combined with other technical indicators to make trading decisions.
Point and figure chart - a point and figure chart consists of columns of X's and O's. Each X represents a price increase, while each O represents a price decrease. The height of each column is determined by the price movement required to generate a new X or O, known as the box size. The width of the columns is determined by the number of boxes required to reach a predefined reversal level, known as the reversal amount.
Image source: - Internet
Point and figure charts are often used by technical analysts to identify trends and patterns in price movements, as well as to determine potential support and resistance levels. Because point and figure charts filter out minor price fluctuations, they can be useful for identifying long-term trends and reducing noise in the data.
One of the advantages of point and figure charts is that they can easily be used to determine price targets and stop-loss levels. By measuring the height of a column and multiplying it by the box size, traders can estimate the potential price movement in the future. Similarly, by measuring the distance between a support level and a resistance level, traders can identify potential trading opportunities and set stop-loss levels to minimize risk.
Overall, point and figure charts are a valuable tool in the technical analyst's toolbox and can be used in conjunction with other types of charts and technical indicators to make trading decisions.
You might be thinking of which chart type will be right for your analysis! There is no anyone fits all formula, instead you can use multiple types for your analysis. There are many research people who follow the practice of using combinations of chart type for their studies.
One must understand that technical analysis is based on past historical data and results plotted on the charts and it assumes that the same chart patterns will be repeated after certain time intervals.
Do share your feedbacks and comments!