Charts are important visual tools that help convey information in a vivid and easy-to-understand way. In forex, Different types of chart plays a key role in traders’ technical analysis. This article will introduce common types of technical charts. Along with that is identifying the characteristics of each type so you can choose the appropriate tool for your analysis purposes. Let’s find out with Forex Trading now!
Why is it important to understand Different types of charts when trading?
Understanding chart types and how to use them effectively is an essential skill for any trader who wants to succeed in the financial markets.
Application of chart types in technical analysis and financial trading
Below are the main applications when traders read and understand charts quickly and accurately:
Monitor price fluctuations
Charts provide a visual representation of an asset’s price movements over time. Traders can easily observe the highest, lowest, opening and closing prices for a certain period of time.
Identify market trends
Technical analysis helps traders identify market trends. It includes uptrend, downtrend, and sideways trends. Identifying market trends is a key factor in making a buy or sell decision.
Forming trading strategies
There are many chart-based trading strategies. For example, trend trading, breakout trading, support/resistance trading… Understanding technical chart types and how to use them effectively will help traders build and apply strategies. Trading strategy that suits your investment style and goals.
Analyze market sentiment
Understanding how to recognize each type of chart in depth can help traders understand market psychology. That is, how investors feel about a particular asset. The chart can show a trader’s hesitation, excitement or fear. This helps traders make more informed trading decisions.
See more: Master the Forex “game” with Price action
Different types of chart is the easiest
To trade charts effectively, traders need to clearly understand how to classify specific charts as follows:
Distinguish between chart types according to the way data is presented
Based on this method, we can classification of charts into the following forms:
Line Chart
A line chart is a line that connects closing prices together over a certain period of time. Thanks to this connection, traders can see the price path more clearly and accurately.
Bar Chart
A bar chart is more complex than a line chart because it shows the prices of a commodity over a unit of time. In this technical chart, traders will see the opening price, closing price, highest price, lowest price… Thereby contributing to tops and bottoms of a short-term and long-term trend.
Depending on the specific time frame, a bar represents price movement within that time frame. For example, if you choose the D1 time frame, then 1 bar represents the price movement in 1 day.
Japanese Candlestick Chart
Like bar charts, candlestick charts still show price fluctuations within a certain time frame.
- Looking at the chart, we will see candlestick patterns with candle bodies and candle shadows.
- The candle body represents the closing-opening price, the candle shadow represents the highest and lowest price.
- Candle colors (green, red, white, black..) may vary depending on the charting platform.
Area Chart
Area charts are similar to line charts, showing price fluctuations over time
- Looking at the chart, we will see a colored area below the price line.
- The color of the fill may vary depending on the chart platform.
- The more the shaded area changes color, the more it shows price fluctuations.
Different types of according to the intended use
In addition to classifying and identifying each type of chart according to the way data is presented, traders also need to pay attention to the intended use of each type of chart to choose the appropriate tool for market analysis and reporting. Make effective trading decisions.
Trend Chart
This technical chart shows the trend of value fluctuations over time. This is achieved by using chart types such as lines, and bars… to show uptrends, downtrends or sideways trends.
Using:
- Watch the direction of price lines, columns, or fill in a chart to identify trends.
- Combine with support/resistance lines and moving averages to confirm trends and predict potential reversal points.
Volume Chart
The purpose of this chart is to show trading volume over a certain period of time. It often uses column or bar charts to represent trading volume.
Using:
- Analyze changes in trading volume over time to determine investor interest in an asset.
- Confirming market trend: High trading volume accompanied by a strong up/down trend can be a signal that the trend is continuing.
- Detect potential reversal points: A sudden increase in trading volume accompanied by a price reversal can be a signal that the trend is about to change.
Technical Indicator Chart
This chart displays technical indicators calculated from price data to aid in trend analysis and price forecasting. It often uses chart types such as lines, and bars… and technical indicators such as RSI, MACD, Bollinger Bands, etc.
Using:
- Analyze technical indicators to identify potential buy/sell signals.
- Combine different technical indicators to increase the reliability of the analysis.
- Note that technical indicators are not always accurate and can give false signals.
- Example: Daily gold price chart with RSI indicator.
Basic advantages and disadvantages of Different types of chart
Here is a summary of the advantages and disadvantages of some basic charts:
Line chart technical chart
About advantages
The biggest advantage of this way of identifying each type of chart lies in its simplicity. Even if you are new to the market, you can easily identify trends and trends. Besides, users can also easily grasp price changes over time. In addition, line charts almost completely eliminate noise fluctuations and focus only on closing prices.
About disadvantages
Besides the above advantages, the line chart is considered to lack detail. Accordingly, traders can only observe the market trend at a glance but do not have enough data to feel the market trend. In addition, the price levels between the peak and the bottom have a fairly narrow range over a short period of time, leading to not providing enough price data. At the same time, this chart also creates many false signals in lower time frames when traders use it incorrectly.
See more: Exness – Trade With The World’s Leading Broker Exness
Bar chart in (TA) technical analysis
About advantages
Bar Chart is a complete illustration of information in an intuitive, easy-to-observe way. It is minimalist and neat to help traders quickly determine the direction of price movement. Besides, traders can also draw an accurate trendline thanks to the bar chart after identifying the trend.
About disadvantages
Bar Chart is not appreciated by many new traders because it is a bit difficult to see. It is even more difficult to analyze further when following the Price Action school.
Advantages and disadvantages of Different types of chart candles
About advantages
In general, candlestick charts are easy to observe. It provides complete information about the price of a currency pair and coin at a time. Thereby, traders get a comprehensive view of the trend factors, as well as the market psychology at that time.
About disadvantages
Japanese candlestick charts show all price information, including price noise and other unimportant fluctuations. It makes many traders confused in the decision-making process.
Area chart in a trading chart
About advantages
An area chart is a combination of the advantages of a line chart and a column chart. It’s easy to use and intuitive. This chart is suitable for tracking long-term trends and identifying potential support/resistance areas. Additionally, provides more information about trading volume than a line chart.
About disadvantages
Charts are more difficult to determine exact reversal points than candlestick charts. Plus, provides little insight into data values compared to a column chart.
Conclude
Understanding the different types of chart is an essential skill for anyone participating in the financial markets. Using charts effectively will help you convey information clearly, and concisely, and attract readers. From there, improve trading efficiency and achieve the set goals. Let’s practice using Forex Trading charts regularly to hone our skills and become proficient data analysts.
frequently asked Questions
Which chart is best for identifying trends?
Line charts and EMA charts are two effective chart types for identifying trends. Line charts show general price trends,
How to combine multiple chart types in trading?
There are many ways to combine multiple chart types in trading. A popular way is to use candlestick charts for short time frames to determine entry/exit points. Besides, use line charts for longer time frames to determine the general trend. You can also use different chart types to track different technical indicators.
What resources provide information on how to use charts in trading?
There are many resources that provide information on how to use charts in trading. Includes books, articles, websites, and online courses. Some reputable resources include Investopedia, Babypips, and TradingView.
