The Meaning of Trading Charts
Trading charts are graphical diagrams that indicate the price fluctuation and movement over a period. To this end, there are daily, intraday, weekly, monthly, and annual charts. Trading charts represent information from various markets. As such, there are forex trading charts, futures trading charts, equity trading charts, crypto trading charts such as bitcoin trading charts, and commodities trading charts. Importantly, due to differences in their appearances, trading charts are categorized based on this fact. Examples include bar, line, and candlestick charts.
Exchanges and brokers provide charts online as part of the tools available to traders and investors in order to help them decide where to invest their cash. This is because they give the investors the opportunity to analyze specific securities at a glance without having to look at the actual data. Additionally, these service providers offer live trading charts which contain real-time price changes. They keep the trader updated on the movements.
Types of Trading Charts
- Based on Period
- Daily charts: they represent the price movement for a particular security over a given day of trading. The data is given in one-day intervals.
- Intraday charts: they represent price points shown on short time intervals, say 5, 15, or 60 minutes. The term intraday denotes the movement within the regular business hours when trading takes place. This type of chart is mainly used for day trading.
- Weekly charts: they indicate the increase or decrease in price over a period of one week.
- Monthly charts: they represent price movement over a period of one month.
- Annual charts: they represent price movement over a period of one year.
- Based on Appearance
- Bar charts: A bar consists of four lines each of which has a specific function. The top and bottom of the vertical bar indicate the highest and lowest prices traded, respectively. The leftward and rightward edges of the horizontal line indicate the prices at the beginning and end of the trading hours, respectively.
- Candlestick charts: they are so named because they resemble candlesticks since they have a line at the top that resembles a wick. They show the open, low, high, and closing price for the period the trader chooses. The line at the top denotes the high price while that at the bottom shows the low price. The candlesticks appear at time-intervals that the trader chooses. For instance, if the individual chooses a 10-minute interval, the candlesticks will appear every 10 minutes. The open, high, low, and close prices will be for that chosen 10-minute period.
- Line charts: Line charts only show the closing price. Lines represent the data.
- Point and Figure (P&F) Charts: Such charts consist of X’s and O’s. The former denotes the rising prices while the latter represents the falling prices. The difference between the X’s and O’s shows the net price fluctuation. As such, these charts are primarily used to show significant changes in prices.
Conclusion: The Importance of Trading Charts
Trading charts are important for traders since they help them make decisions that will impact their ability to either make or lose real money. These charts are part of online tools that brokers provide for traders. Some brokers provide free trading charts while others charge a fee. However, it is important for a trader or investor to find and use the best chart and this always comes at a cost.
There are four types of stock market charts, namely, bar charts, candlestick charts, line charts, and point and figure chart.
Reading a forex chart first requires the trader to identify which type of chart it is. In a line chart, the data points only indicate the closing price. For candlesticks and bar charts, the bar lines indicate the high, low, open, and closing prices. The top and bottom of the vertical bar indicate the highest and lowest prices traded, respectively. The left and right sides of the horizontal line show the opening and closing prices, respectively. Reading a chart helps the trader identify a trend. For instance, a bullish trend is denoted by rising highs and lows while a bearish trend is marked by declining lows and highs. A straight line shows that the market forces that influence supply and demand are equal.